Integrated Annual Report 2014 Performance Highlights for the Past Five Years
Revenue (R’billion) EBITDA (R’million)
7.0 800 6.0 700 5.0 600 500 4.0 400 3.0 300 2.0 200 1.0 100 - - 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
Profit after taxation (R’mllion) Profit per passenger (Rand)
300 60 250 50 200 40 150 30 100 20 50 10 - - 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
Sectors flown Passengers carried
50,000 6,000,000
40,000 5,000,000 4,000,000 30,000 3,000,000 20,000 2,000,000 10,000 1,000,000 - - 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
Fuel burn (litres) per 1,000 available seat kilometers
45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 - 2010 2011 2012 2013 2014 Integrated Annual Report 2014
Contents
Report Profile...... 2
Who We Are and What We Do...... 4
Group Value Added Statement...... 7
Chairman and CEO’s Report ...... 8
Core Values...... 11
Group Objectives...... 11
Strategic Intent...... 12
Internal Control and Risk Management...... 14
Sustainable Development Report...... 18
Corporate Governance...... 42
Audit Committee Report ...... 52
Remuneration Report...... 55
Social and Ethics Committee Report...... 58
Report of the Directors...... 59
Statement of Responsibility by the Board of Directors...... 65
Certificate of Company Secretary...... 66
Independent Auditor’s Report...... 67
Statements of Financial Position...... 68
Statements of Comprehensive Income...... 69
Statements of Changes in Equity...... 70
Statements of Cash Flow...... 71
Segmental Report...... 72
Accounting Policies...... 73
Notes to the Annual Financial Statements...... 82
Notice of Annual General Meeting...... 109
Share Price Performance...... 120
Shareholder Analysis...... 121
1 Report Profile
Scope, Boundary and Reporting Cycle Accounting Practices Committee, the Listings Requirements of the JSE as well as the requirements of the Companies Act (Act No. 71 of 2008), This Integrated Annual Report (“this Report”) of the Comair Group as amended. The Group’s reporting on sustainable development is guided (“the Group”) presents the economic, social and environmental performance by the Sustainability Reporting Guidelines (G3.1) of the Global Reporting of the Group’s airline and non-airline businesses in respect of its operations Initiative (GRI) and the International Integrated Reporting Council’s Integrated in South Africa only, as well as the financial results of the Group for the Reporting Framework’s Guiding Principles. financial year 1 July 2013 to 30 June 2014. Whilst the performance of the Group’s associates is discussed in this Report, the Report focuses The Group has applied the majority of the principles contained in the King more on the performance of the Group’s subsidiaries as their contribution Code of Governance Principles and King Report on Governance (King III). to the Group’s performance is more significant. In addition, this Report The Group’s application of the principles of King III as well as the few does not extend to cover the performance or issues facing the Group’s instances of non-compliance are recorded and explained in the Group’s suppliers in its supply chain, outsourced operations such as, but not limited King III register that is continuously updated and maintained and located to its fleet maintenance, or its leased facilities. These limitations are not on its website www.comair.co.za. A summary report is included in the considered materially to impair the completeness of this Report. There Corporate Governance Report. have been no restatements of previously reported information, nor have there been changes to the basis of calculations or to the assumptions and techniques applied in compiling the data presented other than as Our Stakeholders detailed in the Report. The Group’s commitment to its stakeholders to conduct its business in a sustainable way and to respond to their needs is entrenched in its core The Integrated Annual Report will be sent to shareholders, who are recorded values. The nature of the Group’s business implies a close relationship as such in the Group’s Securities Register on 19 September 2014, and with its stakeholders such as, but not limited to: is available on the Group’s website at www.comair. co.za. Printed copies are available on request from the Group Company Secretary. This is the • Its customers who purchase the Group’s products and services and Group’s fourth Integrated Annual Report, and the prior periods’ Integrated to whom it must provide, amongst other things, a safe, secure and Annual Report, which covered the period 1 July 2012 to 30 June 2013 reliable service; and was published on 28 September 2013, is also available on the • Its employees, who are responsible for providing safe, secure and Group’s website. reliable services; • Its various suppliers who form an integral part of the Group’s ability Reporting Principles to provide a safe, secure and reliable service; • Government Regulatory and Industry Bodies, since the industry in The content of this Report is driven by those issues that have the greatest which the Group operates is subject to extensive government and potential to impact on the Group’s ability to operate. We consider a broad regulatory oversight; range of external and internal factors, including the outcome of various • The community, in an attempt to improve the lives of fellow South stakeholder engagement processes driving the Group’s integrated reporting Africans; process, when deciding which issues are of the utmost importance to • The media, who play an important role in the Group’s engagement address. Whilst this Report attempts to highlight the significant issues with stakeholders; and raised and the outcomes of these various engagement processes, its • Investors, since one of the main objectives of the Group is to create content predominantly focuses on the information deemed relevant to wealth for its investors as reflected in the stakeholder diagram set the Group’s shareholders and potential investors. out below.
The information included in this Report aims to provide shareholders and Without regular communication with the Group’s various stakeholder investors with a good understanding of the significant economic, social groups, it would not be able to deliver its products and services in a safe, and environmental risks and opportunities the Group faces in the short secure or reliable way. Of the stakeholder groups identified below as part and medium term, as well as the Group’s response in order to ensure its of the Group’s regular business activities, select stakeholder groups are ability to create and sustain value for its shareholders and investors in the considered to be more significant in determining the Group’s ability to long term. In addition, the Group explains its efforts to reduce its impact operate and generate value. on the environment and the societies in which it operates.
This Report was prepared in accordance with International Financial Reporting Standards, the Financial Reporting Guides issues by the
2 Integrated Annual Report 2014
External Audit and Assurance
Media The Financial Statements on pages 68 to 108 were audited by the Group’s independent external auditors, Grant Thornton (Jhb) Inc. (Grant Thornton), in accordance with International Standards of Auditing. The report of the Communities Customers* external auditors is included on page 67.
Grant Thornton has provided limited assurance over selected key performance indicators and specific disclosures as set out in this Report. Employees Based on the work Grant Thornton performed, nothing has come to our and trade Investors* attention that causes us to believe that the selected key performance unions* indicators and specific disclosures in the Integrated Annual Report for the year ended 30 June 2014 have not been fairly stated.
Government Industry For a better understanding of the scope of Grant Thornton’s assurance and regulatory associations* process, reference should be made to Grant Thornton’s Assurance bodies* Statement, which can be obtained from the Group Company Secretary, or accessed via the Group’s website www.comair.co.za. Suppliers*
Contact Us We welcome the opinions and suggestions of all our stakeholders. Please address all opinions, suggestions and questions to our Group Company Secretary, Derek Borer, using our contact details supplied on the inside Risk Management back cover of this Report. The Group follows a comprehensive and integrated risk management process where the identification and management of risk forms part of the Executive Management Business Plan. The Board, through the Risk Management Committee, actively monitors this process. For more information on the Group’s risk management process, refer to the Internal Control and Risk Management Report on pages 14 to 17 of this Report.
Significant Events during the Reporting Period During the reporting period in question, the Company implemented a share buy-back in terms of which it repurchased 48,913,372 ordinary shares amounting to 10% of its ordinary issued share capital in accordance with a general authority to repurchase shares, granted by the Group’s shareholders at its Annual General Meeting held on 30 October 2013, and which share repurchases were announced on SENS on 6 November 2013 and 9 December 2013.
No significant changes regarding the Group’s size, structure or ownership, apart from the foregoing, occurred during the reporting period compared to previous financial years. Hence there are no significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in this Report.
3 Who We Are and What We Do
Comair Limited (the Group) is a South African Company listed on the In addition to providing scheduled and non-scheduled airline services, Johannesburg Stock Exchange since 1998 offering, scheduled and non- the Group offers the following non-airline related services: scheduled airline services within South Africa, sub-Saharan Africa and the Indian Ocean Islands as its core business. • A travel and holiday package service using advanced technology to deliver travel and holiday packages to many destinations, both locally and The Group has operated successfully in South Africa since 1946 and is the internationally, to consumers directly and the retail travel trade. Through only known airline to have achieved operating profits for 69 consecutive acquisitions, expansion and partnerships, the Group has established one years, with a safety record which is internationally recognised. of the country’s largest and broadest digital travel distribution networks. The brands under the Group’s travel and holiday package banner include The Group operates its scheduled airline services under two (2) brands, kulula holidays, Holiday Tours, GoTravel24, MTBeds and African Dream namely, the kulula brand and the British Airways brand under licence from Holidays, and the Group also has Harvey World Travel-Holiday Retail British Airways Plc. During the period under review the Group operated Travel Agency. The Group continues to form partnerships with industry 43,246 sectors (one-way flights) and carried 5,196,507 passengers, leaders in travel reward and recognition programmes as part of its as opposed to having operated 40,757 sectors and carried 5,050,873 objective to continuously expand and grow this business. passengers during the prior reporting period. A diagram reflecting all the • In 2009 the Group launched its SLOW Lounges and currently operates destinations to which the Group’s two (2) airline brands provided airline SLOW Lounges at OR Tambo International Airport in both the domestic services during the period under review is set out below. The Group’s and international terminals, Cape Town International Airport domestic headquarters are based in Bonaero Park, Kempton Park and whilst it terminal, King Shaka International Airport domestic terminal and SLOW operates flights destined for locations outside of South Africa, the Group’s in the City in Sandton, Johannesburg. The SLOW Lounges have set operations are based in South Africa. a global standard for airport lounges, providing a perfect sanctuary
4 Integrated Annual Report 2014
from the fast pace of travel and modern life, and have won numerous subjects and flight simulator training for the full range of Boeing awards for their creative excellence. Demand for the lounges has 737 type aircraft. The CTC also provides a variety of other ancillary increased and the Group is embarking on an expansion programme subjects as well as cabin crew and flight dispatcher training. In for the Cape Town International Airport domestic lounge and the collaboration with Avian de Transport Regional (ATR), the CTC is domestic and international lounges at OR Tambo International Airport. also the host for the ATR Reference Training Centre which offers • The Group launched its own catering unit in 2012 under the Food simulator training for pilots of ATR turboprop aircraft. The CTC has Directions brand and provides on-board catering services to its kulula a client base of airlines from numerous African countries, as well and British Airways flights, giving the Group control and flexibility in as the likes of the Middle East, South America, Indo-Asia and the terms of cost and product offering. Far East. • In addition to training Comair’s own pilots, the Comair Training Centre (“CTC”) offers a full range of aviation-related ground school A diagram reflecting the various Group brands is set out below.
kulula.com and British Airways, operated by Comair, are our airline related brands, while the balance of the brands are non-airline brands.
As at 30 June 2014, the Group employed 2,006 permanent, full-time employees over its various operating platforms in South Africa as opposed to having employed 1,912 permanent, full‑time employees over its various operating platforms in South Africa as at 30 June 2013.
5 Who We Are and What We Do (continued)
Organisation Structure
Kulula Air (Proprietary) Limited trading as SLOW in the City: Holds the liquor licences in respect of 100% certain of the Company’s lounges and looks after various service agreements relating to the lounges
Alooca Properties (Proprietary) Limited: Property owning company which owns a number of properties 100% in Rhodesfield surrounding the Company’s operations building
Aconcagua 23 Properties (Proprietary) Limited: Property owning company which owns the property 100% on which the Company’s operations building is situated
Amber Capital (Proprietary) Limited: This company was set up as part of a financing transaction for 100% certain aircraft. It is in the process of being deregistered and is currently dormant
Holiday Tours (Proprietary) Limited: An outbound tour operating company offering holiday packages 100% to destinations outside of South Africa
Online World Travel 24 (Proprietary) Limited: A full service online travel agency providing travel 49% services online
Imperial Air Cargo (Proprietary) Limited: A cargo and freight company providing cargo and freight 30% services in South Africa
Protea Hotel ORT (Proprietary) Limited: Property owning company which owns the building that 25% constitutes Protea OR Tambo Hotel
Commuter Handling Services (Proprietary) Limited: Provides ramp handling services in South Africa 40% to various airlines
49% Comair Mozambique Limitada: The company is currently dormant
Churchill Finance Services 23 Limited: Established in Mauritius for the purposes of financing the 100% acquisition of aircraft. This company is dormant and is in the process of being deregistered
Comair Catering (Proprietary) Limited: Holds the liquor licence in respect of the Group’s catering 100% business and looks after various service agreements relating to the catering operation
Apart from Comair Mozambique Limitada, which is registered in The Group’s affiliated businesses performed well over the period under Mozambique, and Churchill Finance Services 23 Limited, which is review and made a meaningful contribution to profits, although they registered in Mauritius, all the Group’s other subsidiaries and associates make up a small percentage of the Group’s turnover. They are exposed are registered in South Africa. to immaterial risks and pose no threat to the completeness principle.
6 Integrated Annual Report 2014 Group Value Added Statement for the year ended 30 June 2014
2014 2013
R’000 % R’000 %
Wealth created
Group revenue 6,282,219 5,386,581 Cost of materials and services (4,794,443) (4,112,760) Value added 1,487,776 1,273,821 Interest income 32,149 20,217
Total value added 1,519,925 1,294,038
Wealth distributed 964,327 824,930
Community investment 1,623 0 660 0
Employees Salaries, wages and related benefits 738,003 49 671,936 52
Providers of capital Interest on loans 77,340 5 61,641 5 Dividends paid to shareholders 70,295 5 24,215 2
Government Taxation expense 77,066 5 66,478 5
Wealth retained 555,598 469,108
555,598 37 469,108 36 Accumulated profits 555,598 469,108
1,519,925 100 1,294,038 100
7 Chairman and CEO’s Report
Group Performance Strategic Priorities As Chairman and Chief Executive Officer, it is our privilege to oversee and During the period under review, we concentrated on the following strategic lead an airline that has grown from its infancy in 1946 to the Group known priorities: today, operating scheduled airline services in South Africa, sub-Saharan Africa and the Indian Ocean Islands and using 26 aircraft made up of • Improving revenue to cover the rapidly rising fuel price and US B737-800s, B737-400s and B737-300s. During the year under review, dollar denominated costs and managing these costs without ever the airline operated 43,246 sectors, carrying 5.2 million passengers and compromising on providing a safe, secure and reliable airline service; employing 2,026 staff members. • Constantly delivering on our promise to customers; • Enhancing our new, enterprise-wide IT platform; We remain firmly committed to our vision of offering an exceptional travel • Upgrading our fleet, including the investment in new aircraft; experience in the most efficient way. Our focus in delivering on our strategic • Continually monitoring and responding to changes to our macro- intent will enable us to continue to create long-term shareholder value. The operating environment; and Group’s reputation and focus on safety, customer service and efficiency • Providing employment security to all of our employees. has built a sustainable foundation to accommodate growth opportunities and ensure that we continue to play a major role in the Southern African We have delivered against these priorities during the period under review. aviation and travel industry. Performance against Objectives The Airline Industry The aviation industry worldwide is recognised for its operating challenges. Financial Performance It is an industry that is capital intensive, has small profit margins and is Comair has again delivered strong performance against a backdrop highly regulated. A consistent theme across the global airline industry is of a contracting domestic market and devaluation of the Rand. Total one of poor returns on investment, protected competition and low barriers comprehensive income increased by 16% to R265 million, while earnings to entry. It is an industry that is a soft target for taxes, volatile costs and per share were further improved by the repurchase of 10% of issued increased regulation. shares, transacted in November and December 2013, resulting in a 24% increase in earnings per share to 58 cents. The high and volatile fuel price, and in South Africa, our volatile exchange rate, requires airlines to constantly innovate and improve on operating Turnover grew by 17%, with one quarter attributable to an increase in efficiency. Worldwide the industry has recognised the need for radical passengers and three quarters from improved yields. Due to the strength change to ensure sustainability and profitability. of the kulula and British Airways brands and the ongoing attention to customer service, a growth in passengers of 3% was achieved despite Our top priorities are to continuously improve our customer service, the domestic market contracting by 4%. We continued to focus on our control costs and increase our business efficiencies. In this regard, we customers through the application of service metrics, feedback surveys, have adopted an approach not dissimilar to many successful airlines customer journey mapping, and extensive investment in training programmes worldwide, of acquiring and operating larger but more fuel-efficient aircraft for front-line staff. Operating performance remained good, with on-time and implementing a new generation information technology platform performance meeting our threshold target of 85% across both the British enabling us to deliver greater efficiencies and new commercial opportunities. Airways and kulula.com brands. The capacity growth by Comair and its competitors has, however, resulted in a decline of 6% in average seat We are firmly committed to the local aviation industry and to working with occupancy rates compared to the prior year. government and other relevant authorities to ensure: Operating costs remain under control. A significant challenge for the 2014 • The maintenance of a safe, reliable, competitive and commercially financial year was to accommodate an 18% weakening of the average viable air transport sector, where all operators are afforded equal exchange rate, contributing to an increase of 19% in the price of fuel and treatment by government; similar increases in other foreign-based costs. Excluding the effect of the • The provision of an air transport infrastructure that is affordable and fuel price increase, the cost per available seat decreased by 1.5%. This consistent with the requirements of the air transport sector and the was achieved mainly through the efficiencies derived from the ongoing travelling public; and fleet upgrade strategy. The new Boeing 737-800s, acquired 18 months • The provision of air travel at costs that are affordable to South African ago, continued to perform exceptionally well, and Comair purchased a consumers and are in line with internationally accepted airline service further, pre-owned ’800 early in the year, followed by another ’800 on standards and practices. lease. Both of these aircraft replaced Boeing 737-300s that were retired.
8 Integrated Annual Report 2014
Cash at year end remained strong at R868 million, after accommodating Brands outflows of R120 million for the 50% cash component of the purchase Our brands continue to perform well in the market. kulula.com is the of the 737-800 mentioned above, R151 million for the share buy-back, market leader in affordable, easily accessible air travel and continues to R152 million on pre-delivery payments for the four (4) new aircraft to be grow in the cost-conscious business and leisure market. kulula.com has delivered in late 2015 and 2016, and a R102 million deposit on eight (8) become one of South Africa’s iconic consumer brands and is estimated new aircraft to be delivered from 2019 to 2021. to be the country’s largest online retailer by annual sales value.
Comair achieved a clean safety audit by IATA, thereby renewing its IATA Our British Airways (BA) brand has continued to grow in the corporate and Operations Safety Audit certification for a further two (2) years. public sectors, as well as in the inbound tourist markets. The BA loyalty programme, Executive Club, the SLOW Lounges and our investment in our Our affiliated businesses of flight training, travel product distribution and catering products, have all helped to grow the appeal of this brand. Our airport lounges continued to perform well. relationship with British Airways Plc remains strong, with BA and ourselves seeing great potential to grow our partnership further into Africa. Our The Group continued to invest in its transformation initiatives, including SLOW Lounge brand has built great equity amongst business travellers. its pilot cadet programme, airport learnerships, and social responsibility initiatives, and anticipates an improvement in its B-BBEE score. Competition Tribunal Claim As previously reported, the Competition Tribunal ruled in our favour in our Customer Experience case against SAA for its anti-competitive travel agent incentives and its We continued to focus on our customers through the application of feedback abuse of dominance. We also won the appeal which SAA lodged, and surveys, customer journey mapping, service metrics and extensive training have issued a multi-million Rand summons against SAA for damages programmes for front-line staff. Operating performance remained good, related to this claim. We are currently waiting for a date in the High Court with on-time departures meeting our threshold target of 85% on both the of South Africa to have our damages claim against SAA heard. British Airways and kulula.com brands. State Funding of SAA Investment Comair’s entry onto the main South African routes, and its ongoing During the year we made substantial investments towards the ongoing sustainability, relied on the commitments made by government in various upgrading of the fleet by placing an order for eight Boeing 737-8 MAX policies and legislation to create a pro-competitive aviation industry. Failure aircraft for delivery from 2019 to 2021. This was the first order in Africa by government and the state-owned airlines to adhere to these principles, for the new generation MAX aircraft. including the ongoing state funding of SAA, has led to an uneven playing field for competitors. The resulting, often irrational, commercial behaviour We also acquired a B737-800 in October 2013, which became the first of the state-owned airlines remains the most disruptive challenge to of its type in our British Airways fleet. A second, leased B737-800 will the sustainability of the domestic industry, and to us delivering on our join our British Airways fleet in December 2014, followed by the next obligations to our customers, employees and shareholders. four (4) new B737-800s on delivery from Boeing in late 2015 and 2016. All of the aforementioned aircraft are currently designated to replace As previously reported, the Group found it necessary to challenge, by way of existing aircraft. We are also in the process of upgrading our SLOW an action before the South African High Court, the R5 billion State guarantee Lounge in Cape Town. provided by government to SAA. This challenge is on the basis that such funding is contrary to government’s domestic aviation policy, the Constitution, Market Environment the Public Finance Management Act, the Promotion of Administrative Justice Act and the SAA Act. The Group is awaiting a court date for its challenge Partnerships but sincerely hopes that the matter will be amicably settled with government Partnerships are still the cornerstone of our business. We continue to and a solution will be found whereby SAA is held accountable to operate in work closely with the travel agent community in distributing our products. a commercially responsible manner in the domestic market. Our relationship with Discovery Vitality has also grown and now includes local, regional and international flights, holiday packages as well as car Affiliate businesses rental and hotels for Vitality members. We have extended our First National Our affiliates’ businesses performed well over the period and we continued to Bank/Rand Merchant Bank relationship with further investment in the look for aligned business opportunities. While these businesses contribute a SLOW Lounge at Cape Town International Airport. Europcar is one of small percentage of our turnover, they are making an increasing contribution our strongest partners, and together we believe we are the largest online to our profits. Specifically, our online travel business, lounges and flight car rental business in South Africa. training business performed well during the year.
9 Chairman and CEO’s Report (continued)
Corporate Governance to improving our environmental performance by attempting to reduce the adverse impact that aviation has on the local and global environment. Further We aim to be a good corporate citizen and maintain the highest standards details are set out in our Sustainable Development Report. of integrity and ethics in our dealings with our stakeholders. To ensure that we offer the best possible airline service and are regarded as the airline of choice for all travellers within our operating environment, we manage Transformation and control our business by implementing governance procedures and The Group continued to progress with its transformation programme, as ensuring that we identify and manage our risks effectively. During the seen in the most recently issued B-BBEE certificate where the score has year the Group achieved a clean safety audit by IATA, thereby renewing improved from a level 5 to a level 4 contributor. The industry is still faced its IATA Operations Safety Audit certification for a further two (2) years. with significant challenges in attracting adequate numbers of matriculants Further information in this regard can be found in our Internal Control and with higher grade mathematics and science from previously disadvantaged Risk Report on pages 14 to 17 of our Integrated Annual Report. groups for training in aviation specialised skills. Further details on this matter are set out in the Sustainable Development Report. Sustainability We are committed to managing our business in a sustainable way. This Looking Ahead means considering not only the Group’s financial performance and risk We remain concerned with the sluggish economy, declining domestic profile, but also its social, environmental and economic impact. Included passenger market and the high operating costs faced by the aviation in the Integrated Annual Report is our Sustainable Development Report, industry. The total market size remains below the peak volume of 2008 which provides our shareholders with information regarding the significant and does not currently show signs of returning to historic levels. social and environmental risks and opportunities that have an impact on our ability to create long-term value for our stakeholders. In addition, Nevertheless, looking further ahead, we remain confident that there is we explain our effort to reduce the impact on the environment and the scope for further growth in the profits of the Group. The ongoing upgrades societies in which we operate. to the fleet will continue to improve operating efficiency, while at the same time enhancing the revenue potential per flight. We are scheduled People to take delivery of the next four new 737-800s from Boeing in late 2015 and 2016. During the year Comair placed the first African order for the We continue to attract the best talent in the business and continually next generation of Boeing 737, the 737-8 MAX. Eight (8) of these aircraft invest in their wellbeing and development. We are also very fortunate to will be delivered to Comair from 2019 to 2021. have a highly experienced and dedicated management team that has a wealth of experience in the industry. We are also focused on implementing technology solutions to enhance Training our operating performance, customer service experience and revenue generating opportunities. The pace of development in distribution Training and skills development is a major priority to ensure that we technology is relentless, and Comair is intent on extracting the maximum are able to provide a quality service to our customers, and we spent benefit from its customer information data in order to improve its service approximately 3% of payroll during the period under review to support offering, and the marketing of relevant products to its various customer our commitment to this priority. Further details in this regard are set out segments. We are also developing new software applications for use in our Sustainable Development Report. on board the aircraft and on the ground to facilitate more efficient operating procedures. Society We are a committed corporate citizen and, together with our staff, endeavour to improve the lives of fellow South Africans. We try to make Appreciation a meaningful impact on our local communities by attempting to alleviate Our sincere appreciation goes to every person within the Comair Group some of their socio-economic challenges. Our Sustainable Development who contributed to the ongoing success of the Group during the year Report provides further information in this regard. under review. This includes our Directors, management and employees. We extend special thanks to our customers and other stakeholders who Environment have chosen to use our services or provide services to us. We are committed to protecting the environment, conserving natural resources We also thank all the public sector departments and agencies that we and utilising resources in an effective and responsible way by adopting sound have worked with this year for their shared commitment to our objectives. environmental practices in our business and industry. We are also committed
10 Integrated Annual Report 2014
Core Values Group Objectives
The Group and its employees support the following core values. Creating Shareholder Value • We will continue to optimise operating efficiencies and grow the Our Customers profitability of the business. • We will continue to optimise our cost base, without compromising In our dealings with our customers, we aim to: safety, reliability or customer services. • We will always look to make investments that will provide incremental • Reflect the image of the Company; growth based on sound investment principles. • Deliver a safe and quality service; • Regard everyone who is dependent on our outputs as a customer; • Meet the expectations of our customers; Commitment to Quality • Measure customer satisfaction levels; • We will strive to be trusted by all our stakeholders. • Respect our customers’ rights to confidentiality; and • We will always ensure that we provide a safe, secure and reliable • Accept responsibility for customer service. service. • We will always strive to improve customer satisfaction levels. Mutual Trust and Respect We aim to: Managing Risk • We will continue to ensure that our risks are meticulously managed. • Share information to the benefit of the Group; • We will adopt a proactive approach to ensure compliance with • Listen with empathy; regulatory and legislative change. • Communicate openly and honestly; • Display respect for the individual and his/her dignity; • Solve problems on a win-win basis for all parties; Leading as a Responsible Corporate Citizen • Greet and acknowledge one another; • We are committed to managing our business in a sustainable way • Maintain ethical standards; and upholding high standards of ethics and corporate governance • Exhibit respect for the individual and his/her dignity; and practices. • Commit to sustainable transformation addressing the inequalities of the past. Provide Growth and Development Opportunities for Employees Performance Driven • We strive to maintain a corporate culture that provides a working We seek to always: environment which is conducive to employee engagement and productivity and which assists us to attract and retain a talented • Set objectives and give regular performance feedback; workforce. • Ensure that each employee knows what is expected of him/her and • We will provide continuous training and development opportunities what our standards are; to our employees, ensuring that their skills and competencies are • Give recognition to those to whom it is due; relevant and appropriate to our business and the delivery of exceptional • Continuously strive to improve our operating efficiencies; service to our customers. • Eliminate activities that do not add value; • We will strive to be an employer of choice, recognising that market • Base appointments and promotions on competence and performance; competition for competent resources is increasing. and • Offer each employee the opportunity to develop to his/her full potential. Operating Effectiveness • We will continue to develop core competencies across our operating Team Approach environment. We: • We will continue to look for cost-saving initiatives and look to create synergies over our existing and future operations. • Promote positive team behaviour; • We wish to position ourselves as the airline of choice. • Ensure the participation of all role players; and • Exhibit responsible, fair, honest and effective leadership.
11 Strategic Intent
Cycle of Success The Comair ‘Cycle of Success’ illustrates the Group’s strategic intent, its purpose, the business model it follows, its vision as well as the action pillars that underpin its core values. A diagram reflecting the Group’s ‘Cycle of Success’ is set out below:
Purpose Business Model The Group’s purpose, ‘We Lift You Up’, drives our aspiration to lift people The business model is not unique to the Group or the airline industry. The up in an inspiring, empowering, passionate and innovative way, to render challenge lies in making sure the Group achieves the ‘cycle’ for sustainability a positive impact on the world. and growth. It means that with the right equipment and people, the Group can deliver an awesome travel experience to its customers. If our The Group believes that: customers are happy, they will keep coming back and when they keep coming back, our investors will continue to invest in the Group. This will By lifting myself up, allow the Group to be more resilient to change and together we can move I can lift my colleagues up, forward in a sustainable way. To lift our customers up, To lift investors up, Vision To lift society up, The Group’s vision is to ‘Deliver an awesome travel experience in the To lift nations up, most efficient way’. It is an aspirational description of what the Group To lift the world up, would like to achieve and is intended to serve as a clear guide when To lift myself up. choosing current and future courses of action.
12 Integrated Annual Report 2014
Action Pillars and Values Governance of the Business The four action pillars and Think Vision Values guide the Group in following The Group’s governance structures are focused on maintaining and the business model in the right direction. building a sustainable business and being a responsible corporate citizen. The key elements of these governance structures include: Action Pillars The four action pillars are as follows: • Providing a safe, secure, reliable and quality airline service (refer to the Sustainable Development Report for more information); Innovation: The Group has a professional approach to everything • Maintaining principles of good corporate governance, integrity and it does or presents and is committed to a consistent ethics (see the Corporate Governance Report for more information); high standard. It is committed to offering worldclass • Maintaining effective risk management and internal controls (see the products and services in the most efficient way. As a Internal Control and Risk Management Report for further information); market leader, the Group stays up to date with current • Engaging with stakeholders and responding to their reasonable trends and can relate and communicate to the public, expectations (see the Report Profile and Sustainable Development customers, investors, suppliers and employees. Report for more information); Leadership: The Group is a well led and managed South African • Managing the business in a sustainable manner (see the Sustainable company. It leads by example and represents Development Report for more information); and courage and humility. The Group behaves in a • Offering employees a good working environment and competitive responsible way towards the public, customers, remuneration packages, based on the principles of fairness and investors, suppliers and employees. affordability (see the Sustainable Development Report and the Integrity: Safety and security underpin everything the Group Remuneration Report for more information). does. The Group represents poise and reassurance and is trusted by the public, customers, investors, suppliers and employees. Passion for service: The Group is committed to operational efficiency and value. It understands and anticipates the needs of its customers, investors, suppliers and employees.
‘Think Vision’ Values and Principles The ‘Think Vision’ formula for success identifies those values and principles that are beneficial (Top Line) to the Group as well as those values and principles that should be eliminated which could be detrimental (Bottom Line) to the Group.
We encourage our employees to apply these values and principles.
Top Line Leveraging Leading Technology Passion for Service Financially Sound Dignity and Respect Expansion and Growth Pursue Operational Excellence Inspiring Leadership Accountable and Responsible Safety First A Great Place to Work Teamwork Socially Responsible Market Leaders High Performing, Professional People
3 2 2
+ + + + + + + + + + x 2 + + +
3 2 2
+ x 2 + + + + + + + + + + + + Broken Lack of Negative Attitudes Inflexible Accepting Standards Arrogance Resources Mediocrity Reputation Dishonesty and Gossip Favouritism of the Right Compliance Not Enough Bureaucracy Bad Planning Dropping our Backstabbing Damaging our Communication Bottom Line
13 Internal Control and Risk Management
Corporate Governance covering fraud and other risks. In line with its commitment to transparency and accountability, the Group takes action against employees and others The Group is committed to maintaining principles of good corporate who are guilty of fraud, corruption and other misconduct. Procedures governance to ensure that its business is managed in a responsible manner are in place for the independent investigation of matters reported and with integrity, fairness, transparency and accountability. for appropriate follow-up action.
Internal Controls over Financial Reporting The Board believes that the risks described below are the ones that may Internal controls and risk management systems in relation to the Group’s have the most significant impact on the Group’s ability to achieve its six (6) financial reporting process are in place. During the period under review, objectives set out earlier on in this Report. no material changes in risk management and internal control systems over financial reporting occurred. Debt Funding The Group is exposed to a variety of financial risks, including market Internal Control Framework risks, credit risks, capital risks and liquidity risks. The Board approves prudent financial policies and delegates certain responsibilities to Executive The Group continues to review its internal control processes to ensure Management who directly control day-to-day financial operations and it maintains a strong and effective internal control environment. During who operate within clearly defined parameters. the period under review, the effectiveness of the process was regularly reviewed by the Group’s Risk Management Forum and Audit Committee. The Group carries substantial debt that needs to be repaid. The ability For further information on the Group’s internal controls, please refer to to finance ongoing operations, committed aircraft orders and future fleet pages 48 and 49 of this Report. growth plans is vulnerable to various factors, including institutional appetite for secured aircraft financing. The Group attempts to maintain substantial Risk Management cash reserves and committed financing facilities to mitigate the risk of Effective risk management is critical to the Group’s operations and is crucial short-term interruptions to the aircraft financing markets. The Group, in to the continued growth and success of the Group. In order to achieve its addition, continually monitors its cash position and further undertakes objectives and create shareholder value, the Group does take risks but fully long-term planning of its capital requirements. understands and effectively manages the risks it takes in order to minimise loss and maximise opportunities. The objective of risk management in For more information regarding the Group’s response to this risk, see the the Group is to establish an integrated and effective risk management Annual Financial Statements in this Report. framework where important risks are identified, quantified and managed. In order to give effect to same, the Group follows a comprehensive risk Currency Fluctuations management process, which involves identifying, understanding and The Group reports in South African Rands, the exchange rate of which managing the risks associated with its various businesses. As the Group, varies relative to other currencies. A significant portion of the Group’s through its various business units, is exposed to a wide range of risks, costs are incurred in foreign currencies, mainly the United States Dollar. some of which may have serious consequences, the identification of risk The movement of these currencies could have a positive or negative and its management forms part of Executive Management’s Business impact on the Group’s income, expenses and profitability. Unrealised Plan. Risk Priority Registers are used to identify, assess and monitor the and realised currency gains or losses may distort the Group’s financial risks faced by the Group and are prepared by each business department. accounts. The Group has a policy in place to govern the hedging of The Risk Priority Registers are combined into a Group Risk Register by currency exposure. the Group’s Risk Management Forum and are prepared, discussed and assessed by the Group’s Risk Management Committee, which in turn For more information regarding the Group’s response to this risk, see the reports to the Board. The Group prioritises risks based on the likelihood Annual Financial Statements in this Report. of the risk occurring, the impact of the risk and mitigating factors, and categorises each risk as high, medium or low. The Risk Management Forum, Oil Price Fluctuations comprising the CEO, the Chief Risk Officer, the Chief Audit Executive and As with foreign currencies, the Group incurs substantial costs with regard certain Executive Management, meets at least four (4) times per year to to the purchase of fuel for its aircraft. The Group has a policy to hedge assess and consider the risks associated with the Group’s operations. a portion of its fuel requirements based on various instruments available The Risk Committee also reviews the risk management process. and where this is achievable.
In addition to the foregoing, the Group recognises the need for its employees For more information regarding the Group’s response to this risk, see the and stakeholders to have a confidential reporting process (whistle blowing) Annual Financial Statements in this Report.
14 Integrated Annual Report 2014
Safety of passengers and employees do not benefit the airline. On the contrary, the consequential constraint A multitude of processes and structures are in place to monitor and report on demand negatively impacts industry revenue. on aviation safety, quality and security within the Group and its operating environment. The Group maintains an IOSA (IATA Operational Safety Audit) For more information regarding the Group’s response to this risk, see registration, thereby ensuring the implementation of global best practice the Sustainable Development Report and Annual Financial Statements in managing its operational safety, and is also audited by British Airways in this Report. Plc as well as the South African Civil Aviation Authority. Political and Economic Developments For more information regarding the Group’s response to this risk, see the The state of the local economy impacts on the profitability of the aviation Sustainable Development Report in this Report. industry, and the political climate affects the number of visitors from overseas to the Southern African region. Strikes and labour disruptions Aircraft Safety by suppliers to the Group have the potential to constrain the operation of Maintenance of the Group’s fleet of aircraft is regulated by the South African the airline. The Group monitors global and local trends in order to adapt its Civil Aviation Authority and, in certain instances, the Federal Aviation Authority business strategy accordingly. Political instability in any country into which of the United States, and the European Aviation Safety Authority. While the the Group operates its services could also affect the Group. It therefore Group outsources the maintenance of its fleet of aircraft and engines to undertakes risk assessments before embarking on new routes in Africa the likes of South African Airways Technical, Israeli Aircraft Industries, and and internationally. It continually reviews those risks and is assisted in ST Aerospace Engines Pte Ltd, it maintains an oversight function over all this regard through its Licence Agreement with British Airways Plc and these entities and ensures that it maintains a good relationship with the through its membership of the International Air Transport Association. South African Civil Aviation Authority. The Group, in addition, runs a safety management system to address all aspects of aviation and ground safety. For more information regarding the Group’s response to this risk, see the Sustainable Development Report and Annual Financial Statements For more information regarding the Group’s response to this risk, see the in this Report. Sustainable Development Report in this Report. Economic and Business Environment Brand Reputation The Group’s revenues are sensitive to the economic and business The Group’s brands have significant commercial value. Erosion of the brands environment. A downturn in the general economic and business environment may adversely impact the Group’s position with its customers and could could affect the Group’s revenues and operations. It therefore continually ultimately affect future revenue and profitability. The Group’s Executive monitors developments in the economic and business environment for Team regularly monitors customer satisfaction through monthly surveys and trends and early warning indicators. Executive Management and the Audit integrated social media monitoring, as well as ongoing improvements in the Committee regularly review the Group’s revenue forecasts. Group’s product offering in order to mitigate this risk. The Group allocates substantial resources to safety, security, on-board product and new aircraft. For more information regarding the Group’s response to this risk, see the Sustainable Development Report and Annual Financial Statements For more information regarding the Group’s response to this risk, see the in this Report. Sustainable Development Report in this Report. Competition Non-beneficial Increases in Airline Tickets The market in which the Group operates is highly competitive and this There is an extremely high correlation between the volume of air travel risk is augmented by the fact that the country’s biggest airline is owned and the average price of airline tickets in the domestic market. In the past, by the State. Direct competition is faced from other airlines on the routes various state-owned suppliers to the aviation industry implemented tariff the Group operates and from other modes of transport. Competitor increases for users that were significantly greater than the rate of inflation capacity growth in excess of demand growth could materially impact the and threatened to constrict the size of the market for air travel. While it Group’s margins. Some competitors have other competitive advantages must be noted that tariff increases effective 1 April 2014 were more or less such as being funded and supported by government intervention. Fare in line with CPI, the cumulative effect of previous increases may restrict discounting by competitors has historically had a negative effect on the the size of the market for air travel. There is further talk of government Group’s results because a response is generally required to competitor imposing carbon taxes on airline tickets and the Consumer Protection Act fares to maintain passenger volumes. The Group has a strong market has, to a limited degree, impacted on airline commercial practices, which position, a good alliance with British Airways Plc and a diverse customer could lead to an increase in ticket prices. Such increases in ticket prices base to address this risk.
15 Internal Control and Risk Management (continued)
For more information regarding the Group’s response to this risk, see the the period under review. As regards systems and network availability, Sustainable Development Report in this Report. the Group’s Information Technology Department worked closely with its service providers to ensure that a better than 99% up-time was achieved Legislation and Regulation on the Group’s networks and customer facing systems. Regulation of the airline industry is increasing and covers many of the Group’s activities such as safety, security, traffic rights, slot control access and For more information regarding the Group’s response to this risk, see environment controls. In order to mitigate these risks, the Group attempts, the Corporate Governance Report and Annual Financial Statements in amongst other things, to maintain a good working relationship with the this Report. government departments with which it interacts, the Airports Company South Africa and other regulatory and industry bodies. Notwithstanding, Landing Fees and Security Charges bilateral treaties governing route rights within the African continent have Airport taxes, landing fees and security charges represent a significant had a major impact on the Group’s ability to expand its operations into operating cost to the Group and have an impact on operations. Whilst certain the African region. of these charges are passed on to passengers by way of surcharges and taxes, others are not. The Group regularly engages with various industry For more information regarding the Group’s response to this risk, see the bodies and government in an attempt to keep these costs under control. Sustainable Development Report in this Report. For more information regarding the Group’s response to this risk, see Technical Innovation the Sustainable Development Report and Annual Financial Statements Technology forms an integral part of the Group’s business. While the in this Report. British Airways brand is, to a large extent, dependent on developments implemented by British Airways Plc, the kulula brand is not, and the Employee Relations Group devotes significant resources to information technology in respect A large number of the Group’s employees in South Africa are members of of this brand, including the development of new products and services, trade unions. The Group strives to maintain a good working relationship as well as analysing emerging trends in information technology (IT) and with the trade unions where it has recognition agreements in place and consumer behaviour. The Group, during 2012, embarked on one of the enters into substantive negotiations annually. The Group further has a single biggest business transformations in its history whereby a suite of strike action plan in place. integrated solutions procured from Sabre Airline Solutions, including a new reservations platform for kulula.com, was implemented. The transition to For more information regarding the Group’s response to this risk, see the the new platform provides the organisation with an integrated solution that Sustainable Development Report in this Report. will in the medium to long term result in greater efficiencies, improved and wider distribution capabilities and the benefit of access to a global Sabre Key Supplier Risk user community that is constantly reviewing processes and developing new The Group is dependent on suppliers for certain principal business products. Nevertheless, the Group is constantly faced with managing the processes. The failure of a key supplier to deliver on contractual obligations risk presented by new technology, new developments by its competitors may cause significant disruption to operations. A close relationship is or the speed of development. maintained with key suppliers to ensure awareness of any potential supply chain disruption. The Group further continually monitors its key suppliers. For more information regarding the Group’s response to this risk, see the Sustainable Development Report in this Report. For more information regarding the Group’s response to this risk, see the Sustainable Development Report in this Report. Information Systems Security and Availability Risk The Group is dependent on IT systems for most of its principal business Fraud (Credit Card, Cash, System) processes. The failure of a key system may cause significant disruption The Group has implemented a number of risk mitigants to cover credit card, and/or result in lost revenue. System controls, disaster recovery and business cash and systems fraud such as, but not limited to, the implementation continuity arrangements exist to mitigate the risk of a crucial system failure. of Cybersource software as well as the planned implementation of 3D The Group has launched several initiatives to cover not only information Secure in respect of credit card fraud; strict controls and authorisation system security and availability risk, but also IT governance in accordance frameworks for use of Travel Bank’s accounts and strict control over with the requirements of King III. The Board has also appointed a Chief access and transfer rights; regular password changes in respect of bank Information Officer. The Group has, in addition, implemented software accounts; and daily bank reconciliations and procedures for immediate dealing with IT systems security. No security breaches occurred during
16 Integrated Annual Report 2014
investigation of discrepancies in cash reconciliations. The Risk Management Effectiveness of the Risk Management Process and Committee and, where appropriate, the Audit Committee, considers any System of Internal Controls incidents of fraud and corruption. The Board, via the Audit and Risk Committees, regularly receives reports on, and considers the activities of, the internal and external auditors of For more information regarding the Group’s response to this risk, see the Group. The Board, via the Audit and Risk Committees, is satisfied the Corporate Governance Report and Annual Financial Statements in that there is an effective risk management process in place and that there this Report. is an adequate and effective system of internal controls to mitigate the significant risks faced by the Group to an appropriate level. State Funding of SAA During the prior financial year, the Group launched a legal challenge in the High Court of South Africa against government’s R5 billion guarantee provided to SAA, on the basis that such action was contrary to government’s domestic aviation policy, implemented just prior to the deregulation of the South African skies to create an equal playing field amongst domestic competitors, and in contravention with, amongst others, the Public Finance Management Act. While it was hoped that the matter would go to trial in August and/or a settlement would be reached with government, it appears more likely, but not certain as yet, that the matter could be set down for hearing in October/November 2014 about a settlement with government.
For more information regarding the Group’s response to this risk, see the Sustainable Development Report and Annual Financial Statements in this Report.
Broad-based Black Economic Empowerment The Group recognises the importance of implementing a broad-based black economic empowerment (B-BBEE) programme that addresses the inequality of the past, and regularly reviews its B-BBEE strategy so as to ensure that it remains an integral part of the political, social and economic community of South Africa. In addition, the International Air Services Licensing Council and Domestic Air Services Licensing Council review the B-BBEE score of companies applying for licences.
For more information regarding the Group’s response to this risk, see the Sustainable Development Report in this Report.
Skills Shortages Training, employment and retention of skilled staff remains a major challenge, with particular regard to pilots from previously disadvantaged groups. The Group has attempted to address this challenge through its cadet pilot training programme and through its policy of having its pilots signing training bonds in an attempt to ensure that they remain in the employ of the Group for a certain period of time to cover the cost of their training.
For more information regarding the Group’s response to this risk, see the Sustainable Development Report in this Report.
17 Sustainable Development Report
Introduction kulula.com: • The Sunday Times Top Brands Award – First place in the Business Comair Limited (the Group) is firmly committed to managing its business in category; a sustainable way and upholding high standards of ethics and corporate • The Sunday Times Top Brands Award – Third place in the Business governance practices. The benefits of delivering on these commitments category for “Company most spontaneously aware of” by business are many. Through its sustainability efforts the Group maintains business sample; and integrity; maintains and improves the confidence, trust and respect of its • ACSA Feather award for best low cost airline at OR Tambo International stakeholders; and increases its ability to attract and retain staff. Aviation Airport. is an economically vital activity generating employment and wealth across the world and it is thus important that the Group develops a truly sustainable industry. Route Network Comair Limited is a South African Group operating scheduled and non‑scheduled The Group’s track record on delivering growth and creating long-term airline services as its core business under both its kulula.com and British value is testament to its strategy of being a long-term player and delivering Airways brands (the latter under licence from British Airways Plc) in South a sustainable business. While growth, profitability and creating value are Africa, sub-Saharan Africa and the Indian Ocean Islands, as well as providing certainly major strategic drivers, this cannot be achieved by the Group unless other travel-related services, airline pilot training facilities and operating airline it offers a safe, secure, reliable and quality product; values its employees lounges. While the British Airways brand does operate flights into sub-Saharan by following fair labour practices and offering fair remuneration as well Africa and the Indian Ocean Islands, and does advertise its flights on both as training and development opportunities; respects the communities in its kulula.com and British Airways brands for sale through global distribution which it operates and contributes to the wellbeing of society; and cares systems, the majority of its revenue is earned in South African Rand, with for and manages its impact on the environment. a small portion being earned in foreign currency, which foreign currency is repatriated to South Africa. During the period under review, the Group It is evident from the Group profile that it operates in a highly regulated operated 43,246 flights and carried 5,196,507 customers, against 40,757 environment. Risks are managed effectively as reported in the Corporate flights operated and 5,050,873 customers carried in the previous reporting Governance and Internal Control and Risk Management Reports and despite period. The British Airways brand operated 18,594 flights on the domestic the many challenges faced by the airline industry, the Group is confident routes and 3,650 flights to regional destinations and carried 1,745,154 that it is involved in a growing and sustainable business, delivering value passengers on its domestic routes and 289,653 passengers on its regional to all its stakeholders in the short, medium and long term. routes. The kulula.com brand operated 21,002 flights on domestic routes and carried 3,161,700 passengers to domestic destinations operated by the Through its sustainability efforts, the Group believes that it will: brand. The destinations to which the Group’s two brands provided scheduled air services during the period under review are depicted on page 19. • Maintain its business integrity; • Continue to create shareholder value by growing the business; • Effectively manage its risks; Management Approach • Attract and retain a talented workforce by creating a good working The Group Sustainable Development Manager is Mr Derek Borer, the environment; and Group’s Company Secretary, who, as part of its Social and Ethics • Effectively manage and minimise its impact on the environment. Committee, is responsible for the compilation of this Sustainable Development Report. The Social and Ethics Committee is also responsible Awards for developing and reviewing the Group policies with regard to social and economic development, good corporate citizenship and for making The Group received the following external recognitions and achievements recommendations to the Board and/or management on matters within its during the reporting period under review. mandate. See the Social and Ethics Report for more information in this
regard. The content of this Sustainable Development Report is driven by British Airways: the material risks and opportunities facing the Group’s ability to achieve • The Sunday Times Top Brands Awards – Second place in the its objectives, as set out in the Internal Control and Risk Management Business category; and Report. In addition, this Sustainable Development Report aims to explain • ACSA Feather Awards for Best Domestic Full Service Airline at the stakeholder engagement process undertaken by the Group, as well OR Tambo International Airport. as to disclose the key topics raised as a result of this process, and the Group’s response in this regard.
18 Integrated Annual Report 2014
British Airways Route Network
LONDON AND THE WORLD
VICTORIA LIVINGSTONE FALLS HARARE
WINDHOEK MAURITIUS
JOHANNESBURG
DURBAN
PORT ELIZABETH CAPE TOWN
British Airways (Plc) British Airways (operated by Comair)
Note: Effective 8 February 2014, the Group discontinued its services to Maputo from OR Tambo International Airport and hence the route is not reflected above. kulula.com Route Network
KENYA
JOHANNESBURG (OR Tambo and Lanseria)
DURBAN
EAST LONDON CAPE TOWN GEORGE
kulula.com kulula.com codeshare
Note: The service between OR Tambo International Airport and Nairobi in Kenya is operated on a codeshare basis using Kenya Airways Aircraft.
19 Sustainable Development Report (continued)
Engagement with Stakeholders the Group’s objectives. Only those significant stakeholder groups that could fundamentally have an impact on the ability of the Group to achieve The Group’s commitment to its stakeholders to conduct its business its objectives were engaged. in a responsible and sustainable way and to respond to their needs is entrenched in the Group’s values. The nature of the Group’s business requires close engagement with its stakeholders, including but not limited Customers to customers, employees and trade unions, suppliers, government and Providing a safe, secure, reliable and quality experience on both of the authorities, industry associates, investors and the media. Communication Group’s airline brands as well as in its travel-related business is core to with stakeholders is important in maintaining the Group’s reputation as the Group’s business and it therefore strives to deliver “an awesome a trusted and reliable provider of airline and related services. One of the travel experience in the most efficient way” and hence be recognised as Group’s main objectives is to deliver “an awesome travel experience in the the airline of choice for all travellers within its operating environment. The most efficient way” and thus become the premier domestic and regional Group continually measures customer satisfaction through various surveys airline in sub-Saharan Africa and the airline of choice for travellers within and integrated social media monitoring, to identify areas for improvement its operating environment. The Group, in addition, values the importance in order to ensure it provides a quality service. No issues of a material or of its brands, namely British Airways, kulula.com, SLOW and its travel, significant nature were raised by customers. catering and training brands, and has taken the necessary legal steps to protect them. A diagram reflecting the Group’s brands is set out on The Group undertakes monthly research on its brands to determine its page 5 of this Integrated Annual Report. performance and identity areas that need improvement. The result of the research is shared amongst relevant staff members, where concerns raised The Group, having regard to the importance and power of social media, are addressed. Please refer to the section in the Sustainable Development has adopted a social media strategy allowing it to communicate with Report titled Customer Experience for more information on the research its customers through these media and in this regard has recently tools used and the performance of each of the Group’s airline brands. introduced sophisticated software that monitors all social media channels, consolidating all the direct and non-direct customer feedback in real-time To enhance the quality of its service, the Group provides access for allowing the Group the ability to better manage brand performance and qualifying customers (i.e. Gold and Silver Executive Club members, consistency. The social media platforms used by the Group are mainly business class customers, the Group’s VIP guests and RMB qualifying Twitter, Facebook and YouTube. clients) to its airline lounges, known as SLOW Lounges. These are situated at OR Tambo International Airport, Cape Town International Airport, King There have been no incidents of material non-compliance with any applicable Shaka International Airport and SLOW in the City, situated opposite the regulations or legislation concerning marketing communication during the Gautrain Station in Sandton. The concept of the SLOW Lounges is based period under review. The Group was, during its previous financial year, on the theme that time always plays a significant part in people’s lives. taken to the Advertising Standards Tribunal by South African Airways in Modern day life places numerous demands on people’s time and there respect of its “Most South African Way To Travel” advertising campaign is generally not enough of it. SLOW was created as a space for people on the basis that the advertising campaign was a flagrant breach of the to get their time back on their own terms when, for a few moments, Advertising Standards Authority Code. The Advertising Standards Tribunal they have a chance to catch their breath and relax. The Group wanted dismissed South African Airways’ application. South African Airways took to ensure that within the busy airport environment it developed a space the decision on appeal to the Final Appeal Committee of the Advertising and offering that was conducive to relaxation, comfort and convenience. Standards Authority, which was defended by the Group. The appeal was This is evident in the technologies, furnishings and the freshly prepared heard on 26 September 2013 and the Final Appeal Committee of the food and beverage choices delivered through its friendly, efficient staff in Advertising Standards Authority found in the Group’s favour by upholding the lounges. Since the introduction of the SLOW Lounges, the Group has the decision given by the Advertising Standards Tribunal. received many accolades, awards and compliments from industry and customers alike. Demand for the lounges has increased and the Group No requests for information were received in terms of the Promotion of recently embarked on an expansion programme, with extensions to the Access to Information Act (Act No. 2 of 2000) of South Africa. Cape Town domestic lounge expected to be complete by mid-September 2014. Plans are also under way to expand the OR Tambo domestic and As part of its ongoing operations, the Group frequently engages with international lounges. various stakeholder groups. It defines stakeholders as “anyone who affects or is affected by the Group”, and in deciding which stakeholder The Group actively participates in the British Airways Plc Executive Club groups to concentrate its engagement efforts on, the Group considered loyalty programme, as well as offering a co-branded kulula credit card the significance of the various stakeholder groups in the achievement of as follows.
20 Integrated Annual Report 2014
British Airways Executive Club to operate flights using BA intellectual property and in accordance with The Executive Club is British Airways Plc’s global frequent flyer programme BA’s style of business, tweaked to meet local conditions. In terms of designed to recognise and reward loyal members, with the aim of making the Licence Agreement, BA provides other services to the Group such their travel more enjoyable and rewarding. Executive Club members as, but not limited to, access to the BA frequent flyer programme. As earn Avios points (previously referred to as BA Miles) whenever they fly mentioned above, the Licence Agreement has been in operation for with British Airways, a partner airline or on one of the oneworld® alliance almost 18 years and has, in the Group’s view, been highly beneficial to partners. The number of Avios points that members earn, depends both BA and the Group. on the distance they fly, the cabin they travel in, the type of ticket they purchase and their Executive Club tier status. Members can also collect Employees and Trade Unions Avios points with British Airways’ worldwide hotel, car rental, financial An integral part of the Group’s business is about the people it employs. and shopping partners, even when they are not flying. In addition to The Group strives to be an employer of choice and invests significantly in Avios points, members also earn Tier Points. Tier Points allow members this relationship. Paying attention to and responding to employee needs to move through the various tier levels, starting with Blue, then Bronze, through effective communication and sound labour relations is critical then Silver and finally Gold Executive Club status. As members progress to the maintenance of a stable and engaged workforce. Employees are from one tier level to the next they are able to enjoy additional benefits treated with respect, receive competitive remuneration and are involved associated with each tier level such as, but not limited to, airline lounge in the day-to-day running of the business and have access to the Group’s access, dedicated check-in processes and priority waitlists. e-mail facility and intranet. The Group communicates with its employees in a variety of ways including, but not limited, to: The kulula credit card The kulula credit card is a Visa credit card which is issued, owned, financed • The My Comair intranet: This provides a platform to inform employees and administered by FirstRand Bank Limited, which is an authorised of current news and events, newsletters from the CEO, classifieds, financial services and registered credit provider. Customers can earn corporate information, social responsibility feedback, a library of up to 3% back in kulula moolah when using their kulula credit card to standard templates to assist employees in the performance of purchase various goods and services. kulula moolah can be used to pay their duties, policies and procedures, standard forms for leave and for, or towards, any kulula flights. kulula moolah is a virtual currency with employee travel benefits, as well as travel and related specials made 1 kulula moolah equating to R1. available to employees, which the Group has been able to secure from various suppliers; On-board Magazines • Direct e-mails to employees; • Newsletters to employees from the CEO known as Plane Talk; The Group, in addition, prints two on-board magazines, namely High Life • Ad hoc marketing communications in respect of the Group’s two South Africa for its British Airways brand, and khuluma for its kulula.com brands; brand. Both magazines cover a number of subjects, including pertinent • Ad hoc IT communications known as IT Talk; information relating to the Group and its business. The Group has recently • Ad hoc communications from the Learning and Development introduced a magazine in the SLOW Lounges, titled SLOW, which offers Department; readers information and articles of general interest. Twelve issues are • E-mail notification to employees regarding changes in policies and printed per year of each magazine title (one per month). The circulation procedures; for High Life South Africa is 16,000 per month, for khuluma, 21,000 per • Interactions with employees through various workplace forums; month and for the SLOW magazine 5,500 per month. The magazines, • ‘Business Talk with Erik’ – a quarterly forum for middle and senior other than the SLOW magazine, are made available on board the aircraft managers to engage with the CEO and Executive team on topical and the High Life South Africa magazine is also available in the SLOW matters relating to the business. Lounges. Other mediums of communication with customers and potential customers include direct e-mail communications to the Group’s respective The Group, in addition, has the following programmes in place for all customer databases, on-board announcements and advertising campaigns employees: (including radio, TV, outdoor, print and online) as well as social media channels such as Facebook, Twitter and YouTube. • We Lift You Up: This is designed to create a business understanding amongst employees in order to obtain their commitment to the British Airways Plc Group’s Cycle of Success as set out in the Group’s Strategic Intent The Group entered into a Licence Agreement with British Airways Plc (BA) document; during the 1996 calendar year in terms of which it was granted a licence
21 Sustainable Development Report (continued)
• Think Vision: This is the Group’s formula for success and was There is an ongoing dispute with SAAWU around their membership formulated in consultation with employees to identify values and levels which has yet to be resolved by the CCMA. A further dispute with principles that are beneficial to the Group and to eliminate those the Comair Pilots Association in regard to their entitlement to a special values and principles which are detrimental. The Think Vision values bonus paid to other employees was settled in private arbitration, with and principles are the DNA of the Group and their purpose is to guide the dispute being resolved in the Group’s favour. As there are multi-year the thinking, decision-making and actions of all employees; salary agreements in place, there was no negotiation with unions around • Catalyst Awards: This is a reward and recognition programme that wages during the period under review. encourages employees to implement the Think Vision philosophy and to inspire other employees to do the same. Employees may be Other than the above-mentioned, no other material or significant issues nominated for Catalyst Awards by their peers, managers or customers, were raised by employees or trade unions during the period under review. by living one or more of the Think Vision values; • The Precious Cargo Programme: This was created to assist Human Rights employees with balancing the demands of work and family life. The United Nations Global Compact is an international initiative that Details of this programme are dealt with further on in this Sustainable addresses human rights, labour, environmental and corruption issues Development Report; through a commitment to ten principles derived from the Universal • Tip Offs Anonymous: This is an anonymous whistle-blowing facility Declaration of Human Rights. The information set out below provides to enable employees to report any suspicious activities; a brief overview of the Group’s implementation of the ten principles as • On Track: This is a performance management programme giving further dealt with in this Sustainable Development Report. employees clarity as to what is expected of them and measuring their performance in respect of certain key performance indicators; • Business should support and respect the protection of International • Take Off: This is a leadership development programme with the aim Proclaimed Human Rights. of identifying and developing employees who the Group believes can The Group’s human rights policy is part of the ‘Guidelines to the fill key leadership positions; and Code of Ethics’. Human rights principles are incorporated in the • Succession Development Programme: This is a programme developed Group’s labour relations policies and practices and corporate social for middle management for succession planning at the airports. responsibility initiatives.
As at 30 June 2014, approximately 43% (864 of 2,006) of the Group’s • Business should make sure that it is not complicit in human full-time, permanent employees in South Africa were members of trade rights abuses. unions compared with 50% (946 of 1,912 employees) as at 30 June 2013. The Group adheres to this principle through its compliance with all The Group strives to maintain good working relationships with the trade applicable legislation. unions, and has recognition agreements in place and enters into substantive negotiations annually. These negotiations mainly focus on salary increases • Business should uphold the freedom of association and effective and improvements to employment conditions. As at 30 June 2014 union recognition of the right to collective bargaining. membership was as follows: The Group recognises the rights of employees to collective bargaining and to freedom of association in accordance with all relevant South 2014 2013 African labour legislation. It maintains constructive relationships with Solidarity 179 188 all representative unions who enjoy consultative and negotiating rights United Association of South Africa (UASA) 167 89 on issues of employee rights and mutual interests. South African Aviation and Allied Workers Union (SAAAWU) 362 517 • The elimination of all forms of forced and compulsory labour. Comair Pilots Association (which is All the Group’s employees are sourced from the open labour market. affiliated to the Airline Pilots Association of Employees are provided with employment contracts and are free to South Africa) 156 152 resign at any time.
There was no strike action during the period under review. However, • The effective abolition of child labour. SAAWU raised several disputes during this period, mainly relating to a The Group does not make use of child labour and does not support refusal by the Group to bargain with this union as they were no longer the use of child labour in any form whatsoever. It does, in certain representative within the Airport bargaining unit. SAAWU also raised a instances, provide employment opportunities for school leavers, dispute with regard to the Group’s refusal to provide them with recognition provided that such persons meet the International Labour Organization’s within the Cabin Crew bargaining unit due to insufficient representation. employment age requirements.
22 Integrated Annual Report 2014
• The elimination of discrimination in respect of employment and Group’s whistle-blowing facility is available to suppliers. Employees occupation. involved in the purchasing of equipment are bound by strict ethical The Group is committed to compliance with the intent and spirit of principles ensuring that high standards of integrity are maintained in employment equity legislation in the workplace. It is further committed the supplier relationship. to meeting its targets to achieve an equitable representation of race and gender in the workplace. An analysis of the Group’s employment No material or significant issues were raised by suppliers during the equity status is set out later in this Sustainable Development Report. period under review.
• Businesses should support a precautionary approach to Government and Authorities environmental challenges. The Group remains committed to working with government and other This will be the fourth time the Group reports on its emissions in relevant authorities to ensure: terms of the Corporate Accounting and Reporting Standards of the Green House Gas Protocol. Its environmental performance is set • The maintenance of a safe, reliable, competitive and commercially out later in this Sustainable Development Report. viable air transport sector where all operators are afforded equality of treatment by government and the authorities; • Undertake initiatives to promote greater environmental • The provision of air transport infrastructure that is affordable to and responsibility. consistent with the requirements of the air transport sector and the The Group undertakings in this regard are set out later in this travelling public; and Sustainable Development Report. • The provision of air travel at a cost that is affordable to South African consumers and is in line with internationally accepted airline service • Encourage the development and diffusion of environmentally standards and practices. friendly technologies. The Group is committed to developing and diffusing environmentally Government Financial Assistance friendly technologies where both a clear benefit and business case The Group received no financial assistance from government nor did it can be made for the introduction of this technology, such as, but make any contribution towards any political party. not limited to, the new aircraft introduced into service, which are more environmentally friendly, as set out later in this Sustainable Government, Regulatory and Industry Bodies Development Report. The airline industry is subject to extensive government and regulatory • Businesses should work against corruption in all its forms, oversight relating to, amongst other things, safety, security, licensing traffic including exploitation and bribery. rights and consumer protection. The Group regularly communicates and The Group’s commitment to combating corruption is embodied in interacts with governmental, regulatory and industry bodies. its Code of Ethics as detailed in the Corporate Governance Report. Allegations of fraud and corruption are rigorously investigated and Government and Regulatory Bodies where sufficient evidence exists, appropriate disciplinary action is enforced, including the dismissal of offending employees. Department of Transport The Department of Transport (DoT) is responsible for providing secretarial Suppliers support to the two licensing councils, the Airports Company of South The Group is dependent on a number of suppliers who form an integral Africa (ACSA) and the Air Traffic and Navigation Services Company (ATNS) part of its ability to provide a safe, secure, reliable and quality service. Regulating Committee; for ensuring entity oversight of ATNS, ACSA and the The Group attempts to build long-term relations with suppliers who South African Civil Aviation Authority (SACAA); for conducting bilateral air are of vital importance to it based on the principle of mutual trust and service negotiations with foreign governments; and for managing aviation respect. Regular meetings are held with suppliers to ensure continuity industry involvement in major events. The Group interacts, co-operates with of service. The Group further relies on its suppliers to deliver products and provides feedback to the DoT in all these areas. The Group strongly and services in line with its own standards. Other criteria also play an supports the concept of a deregulated and competitive domestic airline import role in selecting suppliers, such as compliance with international industry where all airlines are required to comply with applicable aviation and local quality and safety standards, price, stability of the organisation legislation and compete fairly and equally with one another for market support network and technical capacity and the B-BBEE status of South share. During the period under review, the Group continued with its efforts African suppliers. Any form of purchase incentive is prohibited and the to ensure that the applicable requirements contained in South African Air
23 Sustainable Development Report (continued)
Services Licensing Legislation are complied with via engagement with the the hearing of the review application, Flysafair surrendered the disputed DoT and the two licensing councils mentioned below. The Group continued licence to the ASLC and thereafter submitted a new application for a its participation in the Airlines Association of South Africa (AASA) initiative licence. The Group again objected to the content of the application, to assist the DoT and other government departments to promulgate which resulted in Flysafair abandoning this process and submitting a legislation to fully implement the Cape Convention and Aircraft Equipment fresh application. Although the Group made submissions to the ASLC Protocol (The Convention) into South African Law. Unfortunately, during that the fresh application, did not comply with the foreign ownership the year under review, limited progress was made with this initiative. As requirements of the licensing legislation, the ASLC saw fit to ignore all South African airlines will benefit from discounted aircraft financing these representations and granted Flysafair a new licence in April 2014. rates once the Convention is fully implemented, the Group will continue In addition to the foregoing and as mentioned above, Flysafair lodged a to help AASA to lobby government for the introduction of the necessary complaint with the ASLC against the Group’s domestic air service licence. legislative amendments. The complaint consists of the allegation that the Group breached the Air Services Licensing Act by failing to apply for a licence amendment after International Air Services Council undertaking a share repurchase programme and secondly that when International air services operated by South African carriers between South a ‘look through’ construction is applied to the Group’s current foreign Africa and other countries remain regulated with respect to traffic rights, shareholding component, the amount of this shareholding slightly exceeds frequency and capacity. The International Air Services Council (IASC) is the restrictions specified in the said Act. The Group is certain that there the authority responsible for issuing licences to South African operators is no substance in either fact or law to both aspects of this complaint. wishing to operate air services to regional and international destinations. The complaint has still to be adjudicated by the ASLC. During the period under review, the Group abandoned its licence to operate on the Johannesburg-Maputo (Mozambique) route. The Group also made South African Civil Aviation Authority representations to the IASC against an application by Flysafair to change The South African Civil Aviation Authority (SACAA) is the body responsible its shareholding. In the submission, the Group raised its concerns that for controlling and regulating civil aviation safety and security in South the Flysafair corporate structure might not comply with the requirements Africa. As safety and security is the Group’s number one priority, it interacts of the International Air Services Act (Act No. 60 of 1993) (the Act) and and co-operates on a regular basis with the SACAA to ensure that it requested the IASC to subpoena certain documents that might clarify the maintains and in some areas exceeds the safety and security standards matter. After receiving argument as to whether the Act allowed the Council required by the SACAA. Besides the usual interaction between the Group to consider objections from interested parties regarding an applicant’s and the safety regulator during the period under review, the Group’s shareholding, the IASC found that although the Council did indeed have involvement with the SACAA has concentrated on aircraft registration such powers, it decided to dismiss the Group’s objections and granted and deregistration processes as aircraft have moved into and out of the Flysafair amendment application. The Group maintains an excellent the Group’s fleet. In addition, in light of the complaint received from the working relationship with this Council. Human Rights Commission regarding the Group’s denied boarding of a passenger with special needs, the Group has engaged the SACAA with Air Services Licensing Council respect to possible changes to the Civil Aviation Regulations (CAR) that Domestic air services within the Republic have been deregulated since apply to the carriage of special needs passengers. The Group, through 1990. Therefore the Air Services Licensing Council’s (ASLC) responsibilities AASA, is working with the SACAA to align the CAR applying to special are restricted to the issuing of air service licences to new applicants, needs passengers with international best practice. ensuring the safety and reliability of air services operated within South Africa and adjudicating complaints of non-compliance with the Air In January 2014, the SACAA issued the Group with a Notice of Intended Services Licensing Act (Act No. 115 of 1990). As the Group has held Enforcement Action (the Notice) alleging that the Group had committed and maintained a Class I and Class II Air Service Licence, amongst an offence by failing to comply with a portion of an Airworthiness Directive others, for many years, it only appears infrequently before the Council applicable to certain B737 aircraft and was therefore liable to a fine or to either answer questions on its published annual financial results or imprisonment or both. As there was no safety risk associated with this to amend certain details on its licence. In November 2013, the Group non-compliance and as this incident had been voluntarily reported to successfully interdicted Flysafair from launching its new scheduled low the SACAA, the Group filed two sets of objections to the SACAA. These cost operation, pending a review by the High Court of the scheduled objections were mainly centred on the ‘Just Culture’ principle, (which is a licence granted by the ASLC. The Group based its application on the widely recognised international aviation safety principle protecting those fact that 75% of the Flysafair shareholding was not held by South African who voluntarily report safety incidents from punitive sanction in order to residents. In light of the outcome of the interdict application and prior to advance aviation safety), and objecting to the sanctions described in the
24 Integrated Annual Report 2014
Notice. In June 2014, the Director of Civil Aviation, acting as the final appeal This has resulted in significant cost reductions and improvement in authority, dismissed the Group’s objection and levied a fine against the efficiencies for the Group. The Group regularly interacts with ATNS on Group for its non-compliance. The Group has paid this fine under protest an operational level and maintains a very good relationship with this and will continue, together with other stakeholders, to engage the SACAA service provider. on an acceptable application of the Just Culture principle in South African aviation. The Group’s management continues to maintain a positive and National Consumer Commission good working relationship with the Authority. The Group has co-operated with the National Consumer Commission (NCC) by providing expeditious responses to all consumer complaints Human Rights Commission of SA referred to it by the NCC as well as by participating in NCC initiated In January 2014, the Group received a complaint from the Human Rights conciliation proceedings with consumers whose complaints are not Commission alleging that it had violated the human rights of one of its initially resolved. Almost all consumer complaints are dealt with directly special needs passengers by denying him boarding on one of its flights between the Group and the consumer. No significant complaints were during August 2013. The Group had denied the boarding of this special received during the period under review and almost all complaints were needs passenger on the grounds that the Civil Aviation Regulations (CAR) resolved to the satisfaction of the consumer, with no complaints having required this passenger to travel with an able-bodied assistant and that been referred to the NCC. The Group, via the Airline Association of SA, no arrangements had been made with the Group to accommodate the has further co-operated with the NCC through the development of a need for such an assistant. The Group’s written response to the Human draft Airline Industry Code intended to provide guidance on how the Rights Commission was accepted and the Commission decided to close airline industry will deal with specific airline-related consumer matters and its file in this matter. The Group is, however, working with the SACAA compensation issues. The draft Code has been submitted to the NCC to establish whether the CAR complies with International Civil Aviation and a response thereon is awaited. Organisation (ICAO) standards and other international best practice for the carriage of special needs passengers. The matter was in addition Industry Bodies satisfactorily resolved with the special needs passenger. Airlines Association of South Africa Airports Company of SA The Airlines Association of Southern Africa (AASA) is an organisation formed Most large airports in South Africa are owned and operated by the Airports to promote and protect the interests of its member airlines operating within Company of South Africa (ACSA). On an operational level, the Group the Southern African region. The Group actively participates in both the interacts with ACSA on a continuous basis and maintains a full-time activities and management of the Association. It believes that the Association representative in the ACSA Airport Management Centre at OR Tambo is vital to ensuring a healthy and commercially successful airline sector in International Airport. The Group, together with AASA, also engages Southern Africa. The Group supports AASA by providing it with data and ACSA on the important issues of airport user charges and the standard information on a variety of airline issues; by giving feedback and comment of service provided by ACSA to airport users. As 2014 constitutes the fifth on AASA position papers and submissions; and by participating in the financial year of the current ACSA/ATNS Permission, the Group has been various AASA delegations that attend important stakeholder meetings. participating via AASA in consultations to agree on a business plan for the During the period under review, in addition to participating in the standard Group for the next Permission period. During the period under review, as AASA activities, the Group continued to participate in the AASA initiative to part of the IATA Runway Excursions and Incursions Initiative, the Group engage government on certain deficiencies in South Africa’s implementation attended the ACSA Runway Safety Team meetings for the purpose of of the Cape Town Convention and Aircraft Equipment Protocol. The identifying and mitigating runway hazards. The Group participates, on an Group has also participated with AASA in consultations over the content ongoing basis, with AASA to implement regulations to better structure of the ACSA and ATNS business plans for the next five-year permission the permission process for the setting of ACSA tariffs. cycle. There has also been valuable interaction between the Group and AASA with respect to the air travel requirements pertaining to special Air Traffic and Navigation Services Company needs passengers. At the request of the Group, AASA has undertaken Air traffic and navigation services in South Africa are provided by the a benchmarking exercise to compare the content of the South African Air Traffic and Navigation Services Company (ATNS). During the period requirements for the carriage of special needs passengers with the under review, the Group held regular meetings with ATNS and co- aviation laws existing in other jurisdictions such as the United States and operated in developing the first Global Navigation Satellite System (GNSS) the European Union. This research forms the basis of the engagement VNAV Baro Approach into Lanseria International Airport, Runway 06L. with the SACAA on these matters.
25 Sustainable Development Report (continued)
The International Air Transport Association granting media interviews to share news on developments related to the The International Air Transport Association (IATA) is responsible for Group. No material or significant issues were raised by the media during promoting a safe, reliable, secure and economical air services and fostering the period under review. inter-airline co-operation. IATA also operates the airline clearing house in Geneva, which processes and allocates financial credits and debits The Group’s objective is to position it in the media as a trusted player between member airlines and administers the International Operational in the airline industry – a ‘champion’ of the people, and to position its Safety Audit (IOSA) scheme. The Group maintains its membership of management as leaders on industry issues, to educate the media about its IATA, participates in the clearing house and undergoes a bi-annual IOSA business and how the industry operates as well as broaden the Group’s audit. During the period under review, the Group successfully undertook profile amongst the travel industry media. its fifth bi-annual IOSA audit, which is valid until 16 May 2016. As part of the IOSA audit, the Group was audited against 998 standards and in The Group’s Response to Material Risks and this regard the auditors made no findings, which is a huge compliment Opportunities Identified to the Group.
Investors Issues Impacting the Group, its Strategic Direction The Group’s main objective is to create value for its shareholders. Reports and its Ability to Operate and Create Value to its shareholders are aimed at providing a clear understanding of the Group’s financial, economic, social and environmental performance, both Commitment to Quality positive and negative. Policies are in place to ensure that communications with shareholders are made available timeously and simultaneously. Commitment to Safety and Quality of Service The Group endeavours to maintain dialogue with its shareholders and The Group is committed to providing a safe, secure, reliable and quality other interested parties in the investor community and meets with its service to its customers, and aims to deliver ‘an awesome travel experience institutional shareholders twice a year, after the release of its annual in the most efficient way’ and hence be regarded as the airline of choice and interim results. The Group’s website, www.comair.co.za, contains for corporate and individual travellers in all the areas and regions in which the latest, as well as historical, financial and other information about the it operates. The safety and security of its customers is of paramount Group, including its Integrated Annual Reports. The Board encourages importance and the Group therefore ensures that a strong culture of shareholders to attend its Annual General Meeting, notice of which is safety and security exists among all employees, which goal is supported contained in this Integrated Annual Report, at which shareholders have by a well-defined reporting and management process to ensure that all the opportunity to put questions to the Board. safety and security issues are dealt with thoroughly and effectively. This is formally documented in a Safety Management Manual that has been Apart from an incorrect SENS announcement, which was investigated accepted by the South African Civil Aviation Authority. In addition, the Group by both the JSE and the Financial Services Board as reported on in this maintains an International Operational Safety Audit (IOSA) Registration and Integrated Annual Report, no material issues or topics were raised by has been audited and has passed all audits, with the next bi-annual IOSA investors during the period under review. audit due in February 2016. The Company has also received unqualified audit ratings from British Airways Plc, the Boeing Company and the South Community African Civil Aviation Authority. The Group’s simulators have been audited The Group is a committed corporate citizen and, together with its by external airlines interested in making use of the simulator training facility employees, endeavours wherever possible to improve the lives of fellow and accordingly, numerous airlines are currently making use of the facility. South Africans. It believes that social responsibility is a duty, privilege and Avions de Transport Regional (ATR) conducted an audit of the Group’s obligation to help those less fortunate and to make some impact on society ATR72 simulator training facilities in the 2011 calendar year and the Group in general. For more information regarding the Group’s engagement with passed the audit with flying colours. the community, refer to the section dealing with community involvement on page 36 of this Sustainable Development Report. Security of customers is achieved by applying measures such as, but not limited to, ensuring that all customers, including the Group’s airline crew, Media prior to entering the secure area of the airport, are screened together with their carry-on baggage; all baggage and cargo being placed in the hold of The media plays an important role in the Group’s engagement with all its the aircraft is screened; and no aircraft departs, with certain exceptions, stakeholders. The Group interacts on a regular basis with the media by unless the customer and his/her baggage is on board the aircraft. issuing press releases to both the corporate and trade media, as well as
26 Integrated Annual Report 2014
The key safety and quality of service priorities applied by the Group are The Group has, in the past financial year, made the following investments detailed below. in respect of its equipment, plant and buildings:
• Implementation of the IATA IOSA (a) Continuous investment in maintaining the safety and reliability of IOSA is an internationally recognised and accepted evaluation system aircraft. The Group subcontracts the maintenance of its aircraft and designed to assess the operational management and control systems engines to South African Airways Technical (Pty) Ltd, Israeli Aircraft of an airline. The Group’s approach to aviation safety is one of oversight Industries and ST Aerospace Engines Pte. and audit as defined within the context of the eight (8) disciplines of (b) Following the successful implementation of a businesswide airline the IOSA audit structure, namely organisational management, flight, enterprise reservation system from Sabre Airline solutions in June dispatch, maintenance, cabin, ground (airport), cargo and security. 2012 at a cost of approximately R52 million, the Group has continued The Group has participated in the IOSA programme since 2006 and to improve the system with new modules and updated technology has successfully undergone a total of five unqualified audits. as and when required. This system has and will continue to deliver substantial improvements in revenue integrity, inventory management • Implementation of runway safety measures and optimised ticket pricing as well as improved crew and airport Safety statistics show that runway excursions and incursions are staff productivity. the most common type of accident or incident reported annually. (c) A substantial investment towards the acquisition of a new fleet of In response to this, ACSA has established consultative forums, in Boeing 737-800 new generation aircraft was made which, in addition the form of local Runway Safety teams, at each ACSA airport. The to having delivered substantial fuel savings compared to the B737‑400 Group actively participates in such forums. It also provides operational fleet, also has a greater revenue-generating potential with its greater guidance to the Lanseria Airport management team on their airport seating capacity and requires less maintenance downtime. The runway upgrade programme and associated infrastructure. Group took delivery of four (4) new Boeing 737-800 aircraft during the previous reporting period and will be taking delivery of a further • Training on preventing loss of control four (4) new Boeing 737‑800 aircraft during 2015/16. In addition, the The Group incorporates loss of control in-flight training as part of its Group has entered into a purchase agreement with Boeing for the continuous pilot training curriculum. Various exercises are practiced purchase of eight (8) Boeing 737-8 MAX aircraft for delivery during during such training. 2019 to 2021. During the period under review, the Group purchased one (1) second-hand Boeing 737-800 aircraft and leased a second- • Implementation of safety management system hand Boeing 737-800 aircraft. The Group has a safety management system (SMS) to address all (d) An upgrade of the SLOW Lounge at Cape Town International Airport aspects of aviation and ground safety. The purpose of the SMS is to is currently being implemented, and should be completed by mid- ensure that safety management systems are in place and to ensure September 2014 and the Group plans to upgrade its lounge at OR that risks affecting safety are controlled and appropriately mitigated. Tambo International Airport in the next financial year. The Director of Operations monitors the Group’s performance against defined objectives and the Board reviews the Aviation Safety Goal Customer Experience matrix at its quarterly Board Meetings. The Group recognises that in order to be a truly customer-centric airline, it needs to consistently listen to its customers’ needs. The Group therefore Quality of Equipment continuously seeks the best and most reliable tools to measure customer As mentioned above, the Group’s goal is to provide a safe, secure, reliable satisfaction levels in respect of both its British Airways and kulula.com and quality service to its customers and it strives to procure the best and brands. In this regard, the Global Performance Measurement (GPM) tool latest equipment and technology affordable to it in providing such services. is used for the British Airways brand and the Voice of the Customer (VoC) feedback tool is used for kulula.com. Maintenance of the fleet of aircraft is regulated by the South African Civil Aviation Authority and, as the Group leases in a number of aircraft British Airways from foreign-owned leasing companies, the Federal Aviation Authority The Group conducts monthly on-board research amongst randomly of the United States and the European Aviation Safety Authority. The selected customers. The research methodology is in line with the GPM. Group ensures compliance with airworthiness directives issued by the The overall customer satisfaction performance of the British Airways brand manufacturers of the equipment. Buildings, plant and other equipment during the period under review is reflected in the table below. are maintained to a high standard to ensure a safe and user-friendly environment for employees and customers.
27 Sustainable Development Report (continued)
British Airways overall performance Broad-based Black Economic Empowerment July 2013–June 2014 The Board views the Group’s business as an integral part of the political, social and economic community in South Africa and is committed to Value for money 62% sustainable transformation as part of its business strategy. The Group recognises the importance of implementing a broad-based black economic SLOW Lounge team 74% empowerment (B-BBEE) programme that addresses the inequality of the SLOW Lounge past through a dedicated and ongoing process and regularly reviews its refreshment 77% B-BBEE strategy with the aim of effecting improvement across all seven SLOW Lounge environment 81% pillars of the B-BBEE scorecard, as detailed later in this Report. The Group Overall satisfaction is also required to provide both the International Air Services Council and Air 76% with British Airways Services Licensing Council with its verification certificate and Employment Meal/refreshment Equity Plan when applying for licences or amendments to same. service 57% Likelihood to travel British Airways again 76% In order to facilitate better preparation for the purposes of its B-BBEE Likelihood of Verification, the Group decided to skip the financial year 2012–2013 and 72% recommendation conduct a verification assessment for the financial year 2013–2014. The Departure process 65% B-BBEE audit for the 2013–2014 financial year was conducted by the verification services of Grant Thornton. A comparative of the results for the Check-in process 76% 2011–2012 and 2013–2014 financial year is contained in the table below.
Cabin environment 60% Financial Financial Cabin crew 78% year year Element Indication Weighting 2013/14 2011/12 Ownership Black The Group acknowledges that there are areas for improvement and plans ownership 20 17.73 14.88 are in place to address these. Management Black top control management 10 3.75 2.63 Employment Black managers kulula.com equity 15 2.66 2.39 As mentioned above, kulula.com uses the VoC tool. The VoC tool receives Skills Black training real-time feedback from customers which is used to ensure that the development spend 15 10.60 3.66 brand remains responsive to customer needs. The feedback reflects the Preferential Procurement customer’s perception of the service experienced at different customer procurement spend 20 13.28 12.42 touch points, which in turn informs decisions on how the brand can better Enterprise Investment in development black-owned serve customers. While there are areas for improvement, it is encouraging enterprises 15 15 15 to note that 87% of customers are likely to fly with kulula.com again. Socio‑economic Socio‑economic development contribution 5 3.38 4.44 Customers likely to fly with kulula.com again Total point 100 66.40 55.42
100% 90% 89% 89% 89% 89% 86% 88% 88% 87% 88% 85% 87% The assessment indicates that the Group achieved a total of 66.40 in the 90% 84% 2013–2014 financial year compared to a total of 55.42 in the 2011–2012 80% financial year. The B-BBEE recognition level for the Group increased from 70% Level 5 to Level 4, indicating an improvement due to its focus on several 60% elements of the B-BBEE scorecard. 50% 40% Equity Ownership 30% The Group concluded a Black Economic Empowerment (BEE) transaction 20% during the 2007 financial year pursuant to which shares equivalent to 15% of 10% its post-transaction issued share capital were issued to a BEE Consortium 0% known as Thelo Aviation Consortium (Proprietary) Limited (Thelo Aviation Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Consortium) led by Thelo Aviation Investments (Proprietary) Limited (Thelo
28 Integrated Annual Report 2014
Aviation Investments). In addition to the above-mentioned BEE transaction, to 30.8% (four (4) of 13) during the previous financial year. At Executive Thelo Aviation Investments, the biggest shareholders in the Thelo Aviation Management level (which includes both top management and senior Consortium, purchased an additional 6,172,550 shares in the Company management), two (2) members (18%) of the 11 member Executive for cash from various shareholders. Thelo Aviation Investments disposed Committee are previously disadvantaged persons, which is the same as of its 6,172,550 shares during the reporting period in question. during the previous financial year.
The increase in ownership score between the 2011–2012 and 2013–2014 Employment Equity financial years is as a result of the public purchasing of the Group’s shares The Group’s focus on employment equity (EE) is in line with its overall in the market. transformation strategy.
The Group, on its listing in 1998, implemented a share incentive scheme for The overall race distribution of the Group’s permanent employees in South all permanent employees, including previously disadvantaged employees, Africa as at 30 June 2014, compared to 30 June 2013, is set out below: to enable them to purchase shares in the Group. This scheme, as a result of certain tax changes, has to a large extent become dormant. The Group At 30 June 2014 At 30 June 2013 Shareholder Analysis is set out on pages 121 to 123 of this Integrated White (Females and 737 employees 742 employees Annual Report. Males) (constituting 37% of (constituting 38% of the total number of the total number of Management Control employees) employees) The Group’s BEE Consortium has representation on its Board, with two African, Coloured, 1,269 employees 1,170 employees Indian (designated (constituting 63% of (constituting 62% of of the Consortium members having been appointed to the Board, namely Females and Males) the total number of the total number of Mr Ronald Sibongiseni Ntuli as the Non-executive Joint Deputy Chairman employees) employees) of the Board and Mr Khutso Ignatius Mampeule being an independent Non-executive Director. Reflected below is the summarised employment equity reports (EEA2) submitted online on 6 December 2013 as required in terms of section 22 Currently three (3) of the Group’s 14 Directors (21.4%), excluding the of the Employment Equity Act, as well as the Group’s workforce profile alternate Director, are previously disadvantaged persons, as opposed as at 30 June 2014.
Summarised Employment Equity EEA2 Report as at 31 July 2013 Total number of employees (including employees with disabilities) in each of the occupational levels Foreign Male Female Total Total nationals head Occupational level A C I W A C I W Male Female Male Female count Top management 0 0 0 2 0 0 0 0 1 0 3 0 3 Senior management 0 0 1 6 0 0 0 1 0 0 7 1 8 Professionally qualified and experienced specialists and 4 2 2 145 4 3 6 45 0 0 153 58 211 mid‑management Skilled technical and academically qualified workers, junior management, 127 73 46 187 327 151 93 284 2 3 435 858 1,293 supervisors, foremen and superintendents Semi-skilled and discretionary 57 13 14 22 123 53 52 48 1 0 107 276 383 decision‑making Unskilled and defined 2 1 0 0 21 2 0 0 1 0 4 23 27 decision‑making Total permanent 190 89 63 362 475 209 151 378 5 3 709 1,216 1,925 Temporary employees 0 0 0 0 1 0 0 1 0 0 0 2 2 Grand total 190 89 63 362 476 209 151 379 5 3 709 1,218 1,927 (A = African, C = Coloured, I = Indian, W = White)
29 Sustainable Development Report (continued)
Summarised Employment Equity Report as at 31 July 2013 Total number of employees with disabilities only in each of the occupational levels Foreign Male Female Total Total nationals head Occupational level A C I W A C I W Male Female Male Female count Top management 0 0 0 0 0 0 0 0 0 0 0 0 0 Senior management 0 0 0 0 0 0 0 0 0 0 0 0 0 Professionally qualified and experienced specialists and 0 0 0 2 0 0 0 0 0 0 2 0 2 mid‑management Skilled technical and academically qualified workers, junior management, 0 1 0 1 0 0 1 0 1 0 3 1 4 supervisors, foremen and superintendents Semi-skilled and discretionary 2 0 0 1 1 0 0 0 0 0 3 1 4 decision‑making Unskilled and defined 0 0 0 0 0 0 0 0 0 0 0 0 0 decision‑making Total permanent 2 1 0 4 1 0 1 0 1 0 8 2 10 Temporary employees 0 0 0 0 0 0 0 0 0 0 0 0 0 Grand total 2 1 0 4 1 0 1 0 1 0 8 2 10 (A = African, C = Coloured, I = Indian, W = White)
Workforce profile as at 30 June 2014
Foreign Male Female Total Total nationals head Occupational level A C I W A C I W Male Female Male Female count Top management 0 0 0 2 0 0 0 1 0 0 2 1 3 Senior management 0 0 1 6 0 0 0 1 0 0 7 1 8 Middle management 6 2 3 142 5 3 6 46 0 0 153 60 213 Junior management 127 73 52 192 315 161 108 277 2 3 446 864 1,310 Semi-skilled 63 16 13 18 201 49 36 45 1 0 111 331 442 Unskilled 2 1 0 0 24 2 0 0 1 0 4 26 30 Total permanent 198 92 69 360 545 215 150 370 4 3 723 1,283 2,006 Temporary employees 4 0 0 0 1 0 0 0 0 0 4 1 5 Grand total 202 92 69 360 546 215 150 370 4 3 727 1,284 2,011 (A = African, C = Coloured, I = Indian, W = White)
30 Integrated Annual Report 2014
The Group is implementing the following action plans in order to improve a major challenge. Notwithstanding the foregoing, the Group has representation by previously disadvantaged groups: increased its pilot pool of previously disadvantaged groups by 3% since the implementation of its EE Plan in 2011. • Workforce and succession planning: The Group has identified • Job profiling, job evaluation and grading: All jobs in the Group areas and positions in the organisation at specialist, scarce skills, have been profiled, evaluated and assigned job grades. This enables and senior management levels and has implemented targeted plans valid benchmarking of positions and remuneration both internally and and initiatives to identify and fast track high potential candidates. externally. This has significantly improved transparency in terms of • Recruitment and selection: Active steps have been taken to target recruitment and the filling of vacancies, as well the remuneration and appoint suitably qualified persons from designated groups. The policy within the Group. Further, through the job profiling process, the Group is fully committed to increasing the representation amongst, critical competencies for each job have been identified and mapped and diversity of, its workforce. It has an established Employment which has facilitated the development of personal development plans Equity Forum with whom it consults at regular intervals on progress per employee. towards achieving the EE Plan. Due to the targeted efforts made by • The Group has established an electronic EE Monitoring System which the Group during the year, the number of previously disadvantaged tracks in real time the EE profile and the Group’s progress towards employees increased to 63% compared to 62% during the previous achieving its employment equity targets. reporting period. The percentage includes pilots and technicians, professions where the aviation industry is faced with a particular The Group’s five-year EE Plan (2011–2016) reflecting the numerical challenge to achieve a more equitable representation. The employment goals/targets that it has set and hopes to achieve, is set out below. and retention of pilots from previously disadvantaged groups remains
Foreign % SA Budget Male Female nationals Total EE black head Level goal target count A C I W A C I W M F M F 2011 2 0 0 0 2 0 0 0 0 0 0 2 0 Top management 0% 2016 2 0 0 0 2 0 0 0 0 0 0 2 0 2011 12 0 0 2 8 0 0 0 2 0 0 10 2 Senior management 30% 2016 10 1 0 1 5 1 0 0 2 0 0 7 3 2011 205 4 2 0 145 0 3 6 45 0 0 151 54 Mid-management 17% 2016 195 14 3 1 121 12 2 1 41 0 0 139 56 2011 1,282 128 74 42 197 311 152 95 289 0 3 441 850 Junior management 76.9% 2016 1,276 241 34 18 131 555 80 42 175 0 0 424 852 2011 421 67 20 13 22 118 68 28 84 1 0 123 298 Semi-skilled 86% 2016 444 87 12 7 27 203 29 16 63 0 0 133 311 2011 25 1 0 0 0 23 0 0 0 0 1 1 24 Unskilled 89% 2016 27 4 1 0 1 16 2 1 3 0 0 6 22 2011 10 2 0 0 3 2 1 1 1 0 0 5 5 Disabled employees - 2016 32 5 0 0 2 12 2 1 10 0 0 7 25 (A = African, C = Coloured, I = Indian, W = White)
Skills Development The Group’s commitment to providing a quality air service means that skills development is a priority. The Group invested approximately R16.3 million during the period under review (compared to R14 million in the prior financial year) or approximately 3% of payroll (which is the same for the prior financial year) in support of its commitment to training and skills development. See the section dealing with the Group’s training and development initiatives on pages 35 to 36 for more details.
31 Sustainable Development Report (continued)
Preferential Procurement • Contributions to the Smile Foundation, and Casual Day; The Group is committed to the concept of preferential procurement. It relies • A partnership with the Red Cross Children’s Hospital in the Western on its suppliers to deliver products and services in line with its required Cape in which the Group has donated air tickets for the transport of standards such as, but not limited to, quality and safety of the product, sick children and immediate family members to and from the hospital timeous delivery and availability of supply. Where possible, the Group enters as well as the transportation of specialised medical personnel to into service level agreements with such suppliers in an attempt to ensure hospitals in South Africa where their expertise may be required; and that such standards are met and maintained. Other important factors play • The donation of air tickets to Wings and Wishes for the purpose of a role in selecting suppliers including, but not limited to, compliance with transporting children in need of specialised medical treatment. local and international laws and regulations (particularly those related to aviation), good quality service and products, reliability and stability, cost Further details on the Group’s Corporate Social Investment Strategy and effectiveness and support networks, with particular reference to suppliers initiatives are dealt with on page 36 of this Report. of aircraft parts, components and fuels and the availability of products and services. The B-BBEE status of South African suppliers is also taken Economic Impact into account during selection. The Group is currently implementing a The Group, like many other companies, has an impact on its stakeholders centralised procurement system which will be able to accurately track through, amongst others, the creation of wealth; the creation of employment B-BBEE spend in the future. opportunities; the fair and competitive remuneration of its employees based on industry standards; and its corporate social investment. Kindly While the Group attempts to source products and services from South refer to the Group’s Value Added Statement as set out on page 7 of the African suppliers, this is not always possible, having regard to the nature Integrated Annual Report. The Group’s economic impacts are driven and of the Group’s business, where the acquisition of aviation equipment and influenced by the following factors. specialised airline-branded products need to be procured and sourced from foreign companies, based mainly in Europe and the United States of Access to Affordable Flights America. The proportion of spend with foreign suppliers varies significantly The airline industry is fraught with many challenges involving, but not year-on-year due to the capital value of spend on aircraft and aircraft limited to, the cost of equipment, oil price and currency fluctuations, spares. For the period under review, excluding spend on the leasing and airport charges and taxes and, consequently, access to affordable flights. purchase of aircraft and aircraft spares, the Group spent approximately It was for this reason that the Group was the first in South Africa to launch 87% of its total procurement spend with South African suppliers. a low fares airline, making air travel affordable for a larger portion of the population that would previously not have flown. To enable the Group to In the period under review, the Group marginally increased its score for continue to offer access to affordable flights, it continuously looks at ways preferential spend from 12.4 to 13.28 points. It will continue to focus in which to improve its efficiency and cost effectiveness. These include: on channelling procurement through to black-owned qualifying small enterprises and exempted micro-enterprises. It is also improving its • Implementing a progressive fleet replacement programme. By systems to more accurately reflect its data collection with respect to operating more modern and fuel-efficient aircraft, the Group has preferential procurement. achieved a consistent reduction in the cost of aircraft maintenance Enterprise Development as well as the amount of fuel used per seat; • The introduction of a comprehensive fuel savings programme with The Group scored full points for enterprise development, mainly as a result of the co-operation of pilots; a loan that was provided to BidAir Cargo (Pty) Limited, a black empowered • The weight of an aircraft impacts on fuel burn and the Group has, company, as well as the funding and setting up by the Group of an academy through the installation of lightweight seats and catering equipment, which grooms unemployed school leavers for entry into the workforce. substantially reduced aircraft weight; • Maximised use of available technology to reduce airline distribution Socio-economic Development costs through the use of the internet, thereby eliminating the use of The success of the Group’s Corporate Social Investment Strategy and traditional paper tickets and by introducing self-service check-in for initiatives is reflected in the fact that it scored 3.38 out of 5 in this category. customers; The Group has several social development initiatives in place including: • The Group’s Flight Operations Department, working with Air Traffic Control and Navigation Services, has developed the most efficient • A programme to support and assist the Ekurhuleni Community through routing of aircraft between airports and developed more efficient a variety of initiatives centred around the Reiger Park Community landing approach profiles resulting in substantial fuel savings; and Crisis Centre;
32 Integrated Annual Report 2014
• The setup of the Group’s own catering department known as Food Workforce composition per age distribution Directions, thereby reducing the cost of on-board catering, while at 2014 2013 the same time ensuring a better quality of catering for customers. Financial year Financial year end end Despite its many cost-saving initiatives, some of which are mentioned above, Number of employees younger the Group has experienced a significant increase in average airline ticket than 30 666 581 prices during the financial year under review as a result of a substantial Number of employees between rise in the price of fuel and the weak exchange rate, as reflected in the 30 and 50 1,177 1,178 Group’s Annual Financial Statements. Number of employees older than 50 168 153 Public-Private Initiatives While the Group does not maintain data on turnover rate by age group The Group believes that Public-Private Partnerships (PPPs) and other joint and gender, its staff attrition rate during the 2013/14 financial year was initiatives with government could play a meaningful role in ensuring access 12.4% as opposed to 9.6% in the prior reporting period. to affordable airfares. The Group continuously looks at opportunities for PPPs. No PPPs were entered into during the period under review. Employee Remuneration The Group offers competitive salaries and benefits to its employees Social Impact based on the principles of equity and fairness. Further details of the The Group’s objective to create and sustain value for all its stakeholders Group’s remuneration policies are set out in the Remuneration Report is impacted by its ability to achieve its goal of being an employer of choice on pages 55 to 57. and creating a positive impact on society as a whole. The manner in which it ensures that it achieves these goals is set out below. Remuneration and reward guidelines serve to create a platform for fair and transparent human resource practices so as to ensure consistency The Company’s Employees and non-discrimination among employees and thereby eliminate any form of subjectivity or favouritism. The Group’s position on salaries is in Employee Composition and Turnover Rate the middle quartile; however, salary progression for new employees will The success of the Group is dependent on the commitment of its 2,011 range from the lower quartile to the upper quartile as determined by the employees to deliver a safe, secure, reliable and quality service. The employees’ skills, experience, qualifications and performance. composition of its employees is made up as follows: The Group offers employee benefits to its permanent employees employed Workforce composition by employment type in South Africa and makes a contribution towards employee benefits 2014 2013 and medical aid schemes to those permanent employees employed in Financial year Financial year Zimbabwe. The Zimbabwe employees are free to join the medical aid and end end pension scheme if they so wish. The Group has a defined contribution Permanent employees 2,006 1,912 pension scheme in place for its permanent employees in South Africa, Temporary employees 5 2 which is an umbrella scheme known as Evergreen, administered by Old Mutual. In addition it offers its permanent employees in South Africa risk Note 1: Of the Group’s total number of permanent employees, it has seven (7) benefits in the form of death and disability benefits, which scheme is foreign nationals in its employ, an increase from six (6) in the 2012/13 administered by Discovery Life. The Group’s permanent employees in financial year. All these foreign nationals are employed in South Africa. South Africa contribute 7% towards retirement funding with the Group Note 2: The total number of employees, as set out above, excludes 15 of the contributing 10% to cover both retirement funding and risk benefits. A Group’s permanent employees who are employed in Zimbabwe. medical aid scheme is also in place for permanent employees in South Africa, which scheme is administered by Discovery. The Group contributes Workforce composition per gender 50% of the cost in respect of the Discovery Essential Comprehensive Plan 2014 2013 for such permanent employees. Financial year Financial year end end Labour Relations Male 727 707 Female 1,284 1,205 The Group’s aim is to create and maintain sound labour relations, which support its goal of being the employer of choice in the South African
33 Sustainable Development Report (continued)
airline industry. The Group regularly reviews its employment conditions. Recruitment and Retention of Skilled Staff It tries to ensure that all employees are made aware of their benefits and The recruitment and retention of the right calibre of employee is vital to this information is furnished to employees during induction sessions and enable the Group to deliver on its goal of becoming the airline of choice via the Group’s intranet, newsletters sent directly to staff by the Group, in the places and regions in which it operates. The Group acknowledges Old Mutual and Discovery and other communication methods referred that its ability to recruit and retain skilled employees is a critical factor in to earlier in the report. driving performance in the intensely competitive and dynamic business environment in which it operates. The Group was not subject to any strikes during the period under review. Its disciplinary and grievance procedures are communicated to new The employment and retention of pilots remains a major challenge to employees as part of their induction into the Group and are also available the Group, particularly pilots from previously disadvantaged groups. to all employees to ensure that they are aware of the process in place to As part of its commitment to transformation and skills development in lodge grievances, should they have the need to do so. the aviation industry, the cadet pilot programme sponsors individuals from previously disadvantaged groups to obtain their commercial pilots The percentage of the Group’s employees represented by trade unions or licences. The cost to sponsor each cadet is approximately R400,000. collective bargaining agreements is reflected on page 22 of this Sustainable Once the cadets graduate from the programme, they are placed with Development Report. selected commercial operators to obtain sufficient flying experience to be able to be considered for employment with the Group. The Group, The minimum notice periods for its employees, as set out in the employees’ having regard to the fact that each pilot that joins the Group has to be letters of appointment, are as follows: trained to fly on its aircraft, requires that the pilots sign training bonds, to ensure that they remain in the employ of the Group for a certain period Pilots: 3 months to cover the cost of such training. All other employees: 4 weeks The Group’s recruitment and selection practices are carried out in Top and senior management enter into employment contracts with the accordance with all applicable labour legislation and are based on the Group, which are subject to termination on four (4) weeks’ notice and principles of fairness, transparency and consistency. This is achieved are not subject to any fixed term or form of restraint. This is under review. through the use of objective and validated tools including, but not limited to, competency-based interviews and psychometric assessments. The Performance Management recruitment and selection process entails achieving a balance between A performance management process known as On Track, is carried out employing the best person for the position and the achievement of the for all employees in terms of which they receive performance and career numerical goals as set out in the Group’s EE Plan in order to achieve an development reviews. The On Track process strives to give employees equitable representation of designated groups in all occupational levels as much clarity as possible on what is expected of them and how their within the Group. performance will be measured. It is designed to give managers and staff tools and skills to maintain open, empowered and constructive relationships. Diversity and Equal Opportunities The performance management process exists to assist managers to be The Group is committed to non-discriminatory treatment in all its employment fair and consistent and manage accountability throughout the Group. The practices and to providing equal opportunities for all employees, and emphasis is on quality and face-to-face discussions on performance, with does not accept any form of unfair discrimination based on gender, race, the aim of contributing to a culture of giving and receiving constructive nationality or religion. Employment policies, including hiring, training, and developmental feedback. working conditions, compensation and benefits, promotion, termination and retirement are based on individual qualifications. Employees are treated In addition to the above philosophy, the functional purpose is to align equally, irrespective of gender, age, race, sexual orientation, disability or individually agreed objectives to ensure that the collective effort will achieve other status unrelated to performing the job. The Group’s focus on diversity the Group’s overall Strategic Plan. Through the performance management and employment equity is in line with its overall transformation objectives process the Group hopes to create an environment in which individuals and this is dealt with in the section of this Report relating to B-BBEE. receive direction, guidance and feedback in order to perform optimally During the financial year under review no incidents of discrimination were by identifying ongoing accountabilities and agreeing to specific task observed or reported. assignments. Ultimately it enables the Group to recognise and reward high performance by way of performance incentive pay-outs.
34 Integrated Annual Report 2014
Health and Safety at Work Health and wellness days are held annually and enable employees to Special attention is paid to health and safety in the workplace so as to have health checks done at their place of work. These include blood ensure that there is a safe environment for employees, customers and pressure, height, age, weight and HIV/AIDS tests. The Group’s HIV/AIDS invitees. The health of employees is important to ensure the sustainability programme forms part of the Precious Cargo Wellness Programme for all of the Group. During the period under review, 20 minor incidents were employees and allows them to undergo voluntary HIV testing and, if need reported (as opposed to 52 in the previous reporting period) which injuries be, counselling. Employees who test positive are referred for additional ranged from slipping on wet floors, to falling incidents and other minor counselling through the programme and are provided with medical support incidents. There were no fatalities during the period under review. through the Group medical aid scheme. In addition, HIV Awareness Workshops are conducted to promote the understanding of HIV and AIDS. The CEO ensures that all health and safety duties are discharged as a shared responsibility throughout the organisation, from appointing occupational Training and Skills Development health and safety representatives who know their functions, to positively Training programmes are focused on improving human capital, improving enforcing monthly inspections and attending Health and Safety Committee business processes and procedures, maintaining and promoting quality meetings on a monthly basis. Occupational Health and Safety Representatives service delivery in all aspects of the business and alleviating, within conduct monthly inspections within their departments and annual audits affordable boundaries, skills shortages amongst pilots. are conducted by the Quality Assurance Department to ensure compliance with the Act and to identify any further risks and/or trends. Employee Training The Group makes a significant investment in training, investing approximately Health and Safety Committees 3.0% (the same as in the previous reporting period) of payroll annually. Due regard is paid to the health and safety of employees. The Group strives to provide employees, customers and invitees with a clean and safe The Group has the following training programmes in place: working environment, and maintains reporting and notification systems. The Group has an open reporting culture and encourages the reporting • Take Off: As part of its succession planning, this leadership of all incidents. Safety incidents and damage are reported though a safety development programme has been running for four consecutive years. management system and a formal structure exists to allow safety issues The programme is delivered in conjunction with the Gordon Institute to be addressed within each department. Safety representatives are of Business Science (GIBS) and is underwritten by the University appointed in each department and trained in various areas of health and of Pretoria. As part of this programme the Group’s potential future safety. The Health and Safety Committee meets at regular intervals to leaders are identified and undertake courses covering key areas of discuss pertinent issues. The Group is fully compliant with the Occupational business management in a mini-MBA styled programme. To date, Health and Safety Act. 124 employees have completed the programme, with a further 20 employees currently involved in the programme. Staff Welfare • Cadet Pilot Training Programme: The Group remains committed Balancing the demands of work and family life is not always easy, and it was to its Cadet Pilot Training Programme and two cadet pilots were with this in mind that the Group entered into a contract with Independent recruited during the period under review. Since the initiation of the Counselling Advisory Services (ICAS) and the Group’s Precious Cargo programme, 11 cadets have obtained their commercial pilot licences, Wellness Programme was born. ICAS provides a confidential 24 hour a day, six (6) of whom are currently employed by the Group, while some 365 day a year personal support and information service for employees of the others have been employed at other smaller airlines to obtain and their families where they can call for help in dealing with everyday sufficient flying experience to qualify for employment as a pilot with situations and more serious concerns. On-site clinics have been set up the Group. The Department of Transport has commended the Group and are manned by a registered psychologist once a month at the Group’s on the programme, having regard to the challenges faced by the Head Office, Operations Department, OR Tambo International Airport aviation industry in recruiting and training cadets from previously and Cape Town International Airport. The service includes telephone disadvantaged groups. consulting, face-to-face counselling, life management services and HIV • Workplace Experiential Learning: During the period under review, counselling. In addition, employees have access to e-Care services, the Group was involved with various tertiary education providers to which is an online comprehensive health portal providing valuable and provide six-month workplace experiential training stints to students interactive resources on a wide range of topics approved by qualified health in the travel-related disciplines offered by these tertiary education professionals. Forty-nine percent of staff made contact telephonically with facilities. Since the inception of the programme, five (5) students from the ICAS advisors and 20% made use of the counselling services during the Durban University of Technology have completed the practical the period under review. component of their workplace experiential learning (WEL) at King Shaka
35 Sustainable Development Report (continued)
International Airport in Durban; 13 students from the University of to travel for work purposes. In addition to the flight ticket contribution, Johannesburg have completed their WEL at OR Tambo International the Group committed to provide a cash donation of R500,000 to the Red Airport, with all subsequently being offered permanent employment Cross War Memorial Children’s Hospital, which will be used towards the as Customer Service Agents by the Group; and six (6) students from building of a new facility to accommodate the parents and caregivers of the Cape Town University of Technology have completed their WEL the children receiving treatment at the hospital. at Cape Town International Airport. • Skills Development: The Group contributed R6.2 million to the skills Project Green development of the country in the form of the Skills Levy, which is paid This project was launched in 2007 to raise money to care for the environment, to the Department of Labour, as compared to R5.7 million contributed while also offsetting the Group’s carbon emissions through the sustainable during the prior reporting period. As part of the Group’s contribution greening of townships in South Africa. During this review period, the Group to the community, students from Reiger Park have been provided was unable to collect donations from customers directly, since the Sabre with the opportunity of gaining six (6) months’ work experience. Reservation System does not offer this facility, but it continued with its Since the Group commenced this initiative in 2006, it has awarded investment in Project Green through the donation of R200,000 worth of 135 students from the Ekurhuleni district with passenger handling air tickets to this worthy cause. certificates; employed nine (9) students from the Ekurhuleni district as cabin attendants; and offered 14 students permanent employment. Smile Foundation • A Succession Development Programme (SDP): This programme is The Group continued to put smiles on children’s faces by donating R250,000 modelled on the GIBS Take Off Programme, and was developed for in the form of air tickets to the Smile Foundation, which is dedicated to middle management (supervisors) at the airports to enable ground staff transforming the lives of children with facial conditions. to develop to the next level of management. Nine (9) supervisors at OR Tambo International Airport, nine (9) supervisors from Cape Town Casual Day International Airport and 13 supervisors from King Shaka International Airport have completed the programme. The Group sold stickers on board its flights in support of the Casual Day • Training and Development: In addition, training and development charity initiative, and raised approximately R6,850. courses were provided to employees in areas such as, but not limited to, passenger handling, Group orientation, passenger check-in, Diabetes SA dangerous goods, customer service, station emergency awareness, The Group worked with Diabetes SA to promote awareness of diabetes, aviation safety and security, fares and ticketing, customer experience, by providing free exposure in khuluma (kulula’s on-board magazine), and safety and emergency procedures, type-rating for pilots in respect during the month of November the kulula.com cabin crew wore the official of the aircraft types operated by the Group, and crew resource Diabetes Badge, to promote World Diabetes Day. management training, so as to ensure that the highest standards of safety, security and service are maintained throughout the Group. In For Good Social Network total 1,436 employees underwent training and development courses For Good Social Network is an initiative of Heartlines, a non-profit company during the period under review. that uses various forms of media to inspire people to live their lives to the fullest. The Group contributed an amount of R90,000 to this worthy Investing in the Community cause in the form of air tickets. The Group is a committed corporate citizen and, together with its staff, endeavours wherever possible to improve the lives of fellow South Africans. ORT SA The Group believes that social responsibility is a duty, privilege and an The Group made a donation of R35,000 in the form of air tickets to ORT obligation to help those less fortunate and to make a positive impact on SA to assist them with their Robben Island Swim Initiative. society in general. In this regard, the Group assisted the community as follows: Cycle for Life The Red Cross Children’s Hospital Trust Prizes in the form of air tickets were donated to Cycle for Life in the amount During the period under review the Group formed a partnership with and of R57,000 to assist with the DSTV Mitchell’s Plain Festival. made a donation to the Red Cross War Memorial Children’s Hospital Trust, to assist children needing medical assistance at the hospital. The Group’s Wings and Wishes contribution comprised R500,000 worth of flight tickets to be used to This organisation flies critically ill children from all over the country to various transport children, as well as their parents/immediate family members to hospitals for life saving surgery and medical care. The Group provided and from the hospital for medical treatment. The flight ticket contribution air tickets to the value of R57,247 to assist in transporting such children can also be used by certain staff members from the hospital who need during the period under review.
36 Integrated Annual Report 2014
Environmental Impact Environmental Objectives The Group’s ability to operate and create and sustain value is largely The Group’s environmental objectives focus on assessing and minimising driven by its environmental impact. It is therefore committed to protecting its impact on the environment and are currently aimed at: the environment, conserving natural resources and utilising resources in an effective and responsible way, by adopting sound environmental • Identifying and complying with environmental legislation and regulations; practices in its business. • Identifying and managing all risks relating to the Group’s impact on the environment with regard to water use, energy use and conservation Responsible aviation starts with safety and security and this is the and emissions and climate change; fundamental duty of the Group to its customers and colleagues. • Creating environmental awareness amongst all employees; The Group’s responsibilities also extend to the impact that it has on • Limiting aircraft noise without compromising safety; and the environment. • Linking fuel saving initiatives with an environmental saving objective.
This section of the Report deals with the environmental performance of the These objectives enable the Group to identify aspects of its business Group and reflects its carbon footprint based on the Corporate Accounting that could have an effect on the environment with a view to reducing and Reporting Standard of the Greenhouse Gas Protocol (GHG Protocol). such impact and, working closely with aviation policymakers in South The organisational boundary of the report is reflected in the table below. Africa, to influence the development and implementation of effective environmental regulations. Organisational entity Comair Limited Operational control 100% The Group’s Chief Executive Officer is responsible for ensuring compliance Operational boundary Operational control with these goals and delegates this responsibility to senior managers Reporting period 1 July 2013 to 30 June 2014 within the Group. Base year 2011 Environmental Management Risk Assessment Methodology GHG Protocol Corporate Accounting and Reporting Standard The Group is committed to ensuring that it complies with the environmental Number of employees 2,006 legislation and regulations applicable to it. The main environmental impact Number of sites 16 being managed is the utilisation of fuel and oil which have a direct effect Square meterage of facilities 19,409 m2 on carbon emissions. KPI: Passengers carried 5,196,507 The Group assesses the risks faced by it that are associated with climate As mentioned at the outset, this Report deals only with the Group and its change, which include: operations in South Africa and does not deal with its associated companies. The Report includes the compulsory reporting requirements of the GHG • Regulatory risks: Compliance with environmental legislation; and Protocol by quantifying the Group’s emissions that are categorised as • Physical risks: Interruption to fuel supply, fuel shortages, and the Scope 1 and Scope 2 and includes selected Scope 3 emissions and risks associated with load shedding in South Africa. fugitive emissions as optional information. No fines or sanctions were imposed upon the Group during the period The activities listed in the table below have been reported on. under review for non-compliance with any environmental laws or regulations. Scope 1 Scope 2 Scope 3 (a) Mobile fuel Purchased Water supply Emissions combustion in electricity Paper usage Climate change is the most urgent and significant sustainability issue. The Group-owned/ (Electricity (usage)) Paper recycling greatest component of the Group’s climate impact (approximately 99%) leased aircraft and Well-to-tank emission results from GHG emissions released through the burning of fossil-based Group-owned/ (fuel- and energy- leased vehicles related activity) jet fuel in aircraft engines. The international community aims to limit GHG (b) Stationary fuel concentrations in the atmosphere so that global temperatures do not combustion in increase by more than 2°C by 2050. The Group wishes to ensure that it Group-owned assets makes a fair contribution towards achieving this aim. (Generators and catering equipment)
37 Sustainable Development Report (continued)
Globally, aviation produces around 700 million tonnes of carbon dioxide Inventory 2013/14
(CO2) per year, which represents approximately 2% of total man-made emissions. This share is projected to grow. The aviation industry is Total GHG emissions by source extremely vulnerable to climate change response policies, especially % of % change
where these involve the pricing of carbon emissions. On the other hand, Emission source by Scope footprint t CO2e from 2011 the industry has to contribute its fair share to efforts to limit climate Scope 1 Direct emissions 82.0% 539,293.08 ↑ 1% change. Slowing down aviation growth to reduce carbon emissions is not Stationary fuel combustion <1% 77.00 ↑ 19% in anyone’s interest. It will create unemployment and undermine efforts Mobile fuel consumption 81.9% 539,216.08 ↓ 1% to reduce poverty. As it currently stands, it is estimated that tourism Scope 2 Indirect emissions 1.1% 7,146.53 ↓ 1% sustains one in every 12 jobs globally and contributes approximately 9% Purchased electricity 1.1% 7,146.53 ↓ 1% of worldwide gross domestic product. Aviation is not only a key enabler Total Scope 1 and 2 emissions 546,439.61 ↑ 1% of tourism, but also of trade, investment and global integration. However, while slowing down aviation growth is not an option, being complacent Scope 3 Indirect emissions 16.9% 111,132.57 NM and doing nothing is also not an option, as the continued growth of Fuel- and energy-related activities 16.9% 111,083.37 NM emissions will not be environmentally and economically sustainable. The Material use <1% 29.72 NM Group therefore welcomes the progress made at the International Civil Water use <1% 19.33 ↑ 11% Aviation Organisation (ICAO) General Assembly in October 2010 where Waste disposal <1% 0.15 NM 190 member states agreed to the aspiration of achieving carbon neutral Total Scope 1, 2 and 3 emissions 657,572.18 ↑ 21% growth from 2020. This is in line with the global airline industry vision for
a sector-wide approach to enable carbon neutral growth by 2020 and a Out of Scope emissions t CO2e huge reduction in net emissions by 2050. The Group supports a framework Fugitive emissions 6.68 for reducing aviation emissions based on carbon trading that is applied equally to all airlines and all industries as a whole, i.e. the burden on % change Emission intensities t CO e from 2011 aviation should not be disproportionate to that of other economic sectors. 2 Aviation cannot be the ‘cash cow’ of the climate regime. There is also a All Scopes’ footprint per passenger 0.13 ↑ 8% firm belief that sustainable bio-jet fuels will play a pivotal role in helping Aviation fuel footprint per passenger 0.10 ↓ 10% to meet the carbon emission targets. In this regard there are still hurdles All Scopes’ footprint per employee 328.05 ↑ 18% to overcome, which are mainly commercial in nature, and the need to Scope 1 and 2 footprint per employee 272.62 ↓ 2% 2 1 establish a level playing field for suppliers to produce aviation bio-jet fuel Site specific emissions per m 0.39 ↑ 46% against road transportation and other energy products. 1 Site-specific emissions includes stationary fuel combustion and electricity consumption only British Airways Plc, the Group franchisor in respect of its BA brand and a major shareholder, is playing a leading role within the aviation industry in Emissions by Emission Source developing and promoting proactive schemes for a post-Kyoto aviation
policy. They believe that CO2 emissions from international aviation must 2013/14 GHG Inventory by Emission Source be integrated within a global agreement and that this must be done in a Tonnes of CO2e way that ensures equal treatment of all airlines. The Group supports this approach and is committed to improving its environmental performance 0 100,000 200,000 300,000 400,000 500,000 600,000 and reducing the adverse impact that its activities have on the local and global environment. Scope 1
Scope 2 Insofar as the Group’s emissions are concerned, its GHG inventory, by
scope and expressed in metric tonnes of carbon dioxide equivalent (CO2e) Scope 3 is detailed in the tables and graphs below with comparatives between the financial year in question and the base year. The Group also reflects GHG Inventory for 2013 financial year. Stationary fuel combustion Mobile fuel combustion Purchased electricity Fuel- and energy-related activities Material use Water use Waste disposal
38 Integrated Annual Report 2014
Mobile fuel combustion (primarily aviation fuel) has the largest emission Detailed breakdown of stationary combustion impact, making up 82% of the total footprint and 99% of Scope 1 and Unit of Emission Tonnes of Scope 2 emissions. It is encouraging to note that emission growth in this Emission source measure factor Consumption CO2e source remains slower than growth in passengers carried, demonstrated Diesel ℓ Various 1,134 3.03 by the 10% decrease in aviation fuel emissions per passenger carried LPG ℓ Various 49,239 73.97 since the base year. Total score 77.00
While immaterial, stationary fuel combustion emissions have increased Indirect Emissions (Scope 2) from base year (19%), due the Group’s Catering Division which was in Emission operation for the full financial year. factor
Unit of kg C02e Tonnes of Emission source measure per unit Consumption CO e Scope 3 emissions have increased substantially from previous years, 2 Purchased due to the inclusion, for the first time, of indirect fuel-related emissions, electricity kWh 1.03 6,938,381 7,146.53 otherwise known as well-to-tank emissions. This source makes up 17% Total Scope 2 7,146.53 of the total footprint. Scope 3 Emissions The total GHG Inventory of the Group for the 2013/14 financial year was Emission
657,572.18 tonnes of CO2e made up as follows: factor
Unit of kg C02e Tonnes of
Direct Emissions (Scope 1) Emission source measure per unit Consumption CO2e Scope 1 Emissions Fuel-related well- to-tank activities Unit of Emission Tonnes of Mobile fuel CO e Emission source measure factor Consumption 2 combustion Mobile fuel Aviation fuel kg 0,6550 169,354,931 111,012.16 consumption: Petrol ℓ 0,45040 41,071 18,5 aircraft kg Various 169,354,931 538,924.33 Diesel ℓ 0,57850 73,916 42.76 Mobile fuel Stationary fuel consumption: combustion Vehicles ℓ Various 114,987 291.75 Stationary Diesel ℓ 0,57850 1,134 0.66 combustion: generator fuel LPG ℓ 0,18890 49,239 9.29 use and LPG Material use fuel use ℓ Various 50,373 77.00 Total Scope 1 539,293,08 Paper Tonnes 956 31.09 29.72 Water use The direct emissions reflected above are broken down as follows: Water supply K ℓ 0,34410 56,184 19,33 Paper, closed- Detailed breakdown of mobile fuel combustion in Company-owned/leased loop disposal method Tonnes 21 6.93 0.15 aircraft and owned/leased vehicles Total Scope 3 111,132.57 Unit of Emission Tonnes of
Emission source measure factor Consumption CO2e Aviation fuel kg Various 169,354,931 538,924.33 Petrol ℓ Various 41.071 94,46 Diesel ℓ Various 73,916 197.29 Total score 539,216.08
39 Sustainable Development Report (continued)
Optional Information Scope 3 Emissions
Breakdown of non-Kyoto fugitive emissions from air-conditioning equipment Breakdown of paper usage
Unit of Tonnes of Unit of Emission Tonnes of
Emission source measure Consumption CO2e Emission source measure factor Consumption CO2e Refrigerant emissions: R22 kg 3.69 6.68 Paper Tonnes 954.51 26.20 25.00 Waste Tonnes 5.19 0.11 GHG Inventory 2012/13 Water supply (Purchased GHG Inventory municipal water) Million ℓ 344 kg 52.97 18.22 2013/14 Scope 1 Scope 2 Scope 3 Total Total 43.33 Metric tonnes of CO e 515,870.54 7,281.89 43.33 523,195.76 2 In comparing our GHG Inventory for 2013/14 with 2012/13, and the base year, it must be noted that: The total GHG Inventory of the Group for the 2012/13 financial year was 523,195.76 metric tonnes of CO e made up as follows: 2 • The major reason for the increase in Scope 1 emissions is due to the following factors: Direct Emissions (Scope 1) - The Group increased the number of flights operated to 43,246 Scope 1 Emissions flights in the 2013/14 financial year compared to 40,757 in the Unit of Tonnes of 2012/13 financial year. CO e Emission source measure Consumption 2 - The increase in the stationary fuel combustion was due to the Mobile fuel consumption ℓ 202,927,886 515,797.46 Group having operated its own Catering Department for a full Stationary fuel combustion ℓ 47,356 73.08 financial year. Total 515,870.54 • The major reason for the increase in the Scope 2 emissions is attributed to the Group having operated its own Catering Department for a full The direct emissions reflected above are broken down as follows: financial year (as mentioned previously). • The major reason for the increase in the Scope 3 emissions is as set Detailed breakdown of mobile fuel combustion in Group-owned/leased out in 2 above. aircraft and owned vehicles
Unit of Emission Tonnes of In order to reduce the effect that the Group has in respect of Scope 1, 2 CO e Emission source measure factor Consumption 2 Scope 2 and Scope 3 emissions, it has: Aviation fuel ℓ Various 202,846,266 515,589.19 Diesel ℓ Various 26,928 62.22 • Over the past number of years, implemented a fleet replacement Petrol ℓ Various 54,692 146.05 programme and during the period under review operated 11 Boeing Total 515,797.46 737-800 new generation aircraft, ten (10) Boeing 737-400 aircraft and five (5) Boeing 737-300 aircraft. It has also entered into an agreement Detailed breakdown of stationary fuel combustion (generator, gas) with the Boeing Company to purchase eight (8) B737-8 MAX aircraft Unit of Emission Tonnes of for delivery through 2019 to 2021, which aircraft are an upgrade CO e Emission source measure factor Consumption 2 to the B737-800 aircraft and will offer even better performance, Diesel ℓ Various 2,025 5,41 fuel efficiency and lower engine emissions. These new generation LPG ℓ Various 45,331 67.67 B737-800 aircraft are not only quieter than the older generation B737 Total 73.08 aircraft, but also offer better performance and fuel efficiency, reduced noise on take-off and landing, and lower engine emissions. Since Indirect Emissions (Scope 2) the introduction of the new Boeing 737-800 aircraft, the average fuel Tonnes of Unit of Emission burn per passenger is now at around 30 kg per passenger. The new Emission source measure factor Consumption CO2e aircraft and increased passenger numbers have helped to reduce Purchased the average fuel burn per passenger. In fact the new 737-800 uses electricity kWh 1.00 kg 7,281,891 7,281.89 approximately 6% less fuel per seat than the older 737-800 aircraft and 24% less fuel per seat relative to the 737-400 aircraft;
40 Integrated Annual Report 2014
• Approximately four years ago, implemented a programme to reduce • In conjunction with its pilots, designed and implemented a comprehensive weight on board the aircraft by implementing a paperless cockpit, fuel savings programme according to world best practice while also reducing the amount of potable water carried on board the aircraft taking local operating conditions into account. This has resulted in a and reducing the weight of the aircraft galleys and thus reducing the further 1.4% reduction in fuel consumption across its fleet. The B737- fuel used on board the aircraft; 800 aircraft have also reduced the Group’s fuel burn per passenger, • In conjunction with Air Traffic Control, where possible, implemented a as the aircraft has the capacity to carry 21 more passengers and Continuous Descent Approach to achieve fuel efficiency and reduce burns 200 kg per hour less fuel than the B737-400. the impact of noise; • Where such stands are assigned to them by the ACSA, used fixed Waste Management and Recycling ground power units as opposed to auxiliary power units to reduce While the Group had previously implemented a programme to recycle fuel consumption and noise; paper, this is the second year in which it has been able to measure the • Attempted to reduce the impact of noise, as annoyance and sleep tonnage of the paper recycled which measurement was included in its disturbance are the most commonly reported adverse effects of carbon footprint measurement. aircraft noise. The Group’s objective is to try to reduce or limit the total number of people exposed to high levels of aircraft noise. Current The Group outsources the maintenance of its aircraft and aircraft engines regulations and voluntary actions by the Group, such as phasing to third party suppliers as detailed earlier in this Report. These third party out its older aircraft, ensuring that all its engines are stage 3 noise suppliers dispose of waste arising from the maintenance of the aircraft and compliant, as well as restrictions on the use of airspace, night time aircraft engines, including radioactive material, in accordance with their flying and ground operations restrictions, have, to a large extent, own policies and procedures relating to water management and recycling. resulted in reduced aircraft noise; • Investigated and is currently implementing various energy-saving Refuse removal in the Group complies with South African laws and initiatives with regard to electricity consumption such as, but not limited regulations. to, changing all light fittings and globes to more energy efficient ones; • Implemented a number of initiatives to reduce water consumption, Compliance including the use of borehole water at its Head Office and operational To the best of the Group’s knowledge and belief there have been no incidents buildings. Other initiatives to reduce water consumption include of material non-compliance with any environmental laws or regulations and employee awareness, monitoring of uncontrolled leakages and no fines were imposed upon it during the period under review. monitoring garden irrigation cycles; and
Glossary of Terms Used in this Environment Impact Section Boundaries The inventory boundaries to determine which emissions are accounted for and reported. Boundaries include organisational, operational, geographic and business unit structures. Carbon footprint The total greenhouse gas emissions caused directly and indirectly by an organisation, typically over a period of 12 months.
CO2e Carbon dioxide equivalent – standardisation of all greenhouse gases to reflect its warming equivalent to carbon dioxide (CO2). This is used to evaluate different greenhouse gases against a common basis. Direct emissions GHG emissions from facilities or sources owned or controlled by the Group, e.g. generators, Company-owned vehicles, etc. Emissions The release of greenhouse gases into the atmosphere. Emission factor Conversion factor to translate activity data, e.g. tonnes of fuel consumed, into emission data. GHG Greenhouse gases. Under the GHG Protocol standard six gases are accounted for, namely carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. GHG Inventory A listing of the GHG emissions and sources that are attributable to the Group. GHG Protocol GHG Protocol Corporate Accounting and Reporting Standard. Indirect emissions Emissions that are a consequence of the operations of the Group, but occur at sources owned or controlled by another company. Operational boundary The boundary to establish the operations and sources of emissions included in the GHG Inventory. Organisational The boundary to establish business units or entities of an organisation included in the GHG Inventory. An equity or control boundary approach can be taken. Reporting period The period of time, typically a calendar or financial year, which the report covers. Scope 1 emission Direct emission from Group-owned or controlled equipment, vehicles or aircraft. Scope 2 emission Indirect emission from the consumption of purchased electricity. Scope 3 emission Indirect emission from other activities associated with the activities of the Group, e.g. commuting travel, business air travel and paper or water consumption.
41 Corporate Governance
Introduction transparency and accountability, it takes action against persons who are guilty of fraud, corruption and other misconduct. Any employee or The Group is subject to the Listings Requirements of JSE Limited (JSE) external stakeholder is able to report wrongdoing on a confidential and as well as the requirements of the Companies Act (Act No. 71 of 2008), anonymous basis to an independent service provider, which ensures as amended (Companies Act). The Group supports the governance that all calls are treated confidentially. The number of calls or e-mails principles and guidelines contained in the King Code of Governance received during the reporting period was five (5). All calls and e-mails Principles and King Report on Governance (King III) and is comfortable were followed up by the Group and, where necessary, appropriate that it has complied with effective controls that have been put in place. action was instituted.
Compliance with the JSE Listings Requirements and the Companies Act is monitored by the Group Company Secretary and the Group’s Compliance Corruption Officer and reported to the Board. The Group has a no-tolerance approach with regard to unethical conduct, in particular to fraud and corruption. Strict policies relating to gifts and The Group is committed to maintaining principles of good corporate donations received from third parties are in place, compelling employees governance to ensure that its business is managed in a responsible or management to declare same. manner with integrity, fairness, transparency and accountability. The Board supports the governance principles and guidelines contained in The Group further prohibits the making of donations to political parties the Companies Act, the JSE Listing Requirements and King III. unless same have been pre-approved by the Board. No donations to political parties were made by the Group during the period under review. Statement of Compliance Any material incidents of fraud or corruption are reported to the Risk In terms of the JSE Listings Requirements the Group is required to report Management Committee and in addition, where appropriate, to the Audit in respect of King III for its financial year ending 30 June 2014. Committee. The following incidents of fraud and corruption were brought to the attention of both the Risk and Audit Committees and reported to The JSE Listings Requirements require all JSE-listed companies to comply the Board: with King III and to report on the application of the King III principles in accordance with the ‘comply or explain’ approach of King III. While the vast Credit Card Fraud majority of King III principles were applied by the Group for the duration The Group first experienced increased levels of credit card fraud in 2010 of the period under review, those principles that were not complied with and as a result implemented a software program (Cybersource Fraud are explained in this Report. A summary King III Checklist is included at Detection), which resulted in a significant reduction in credit card fraud. the end of this Corporate Governance Report. The full King III Application The Group has been able to maintain these reduced credit card fraud Register appears on the Group’s website at www.comair.co.za. levels, and credit card chargebacks incurred for fraudulent bookings are down by approximately 83% from the peak levels experienced in previous Code of Ethics years. This reduction has been achieved by a combination of systems The Group has a strong culture of entrenched values, which forms the and controls including: cornerstone of the behaviour expected of it towards its stakeholders. These values are embodied in a written document known as the Group • The Cybersource Fraud Detection System which makes the necessary Code of Ethics. Conducting business in an honest, fair and legal manner verification call prior to confirmation of the flight booking; is a fundamental principle of the Group. Ethical behaviour has always been • System development, enabling the transmission of credit card CVV a fundamental guiding principal and management continually focuses on numbers to the banks, which went live in the second quarter of establishing a culture of responsibility, fairness, honesty, accountability the period under review and allows the relevant bank to conduct and transparency. The Group has adopted a Guide to the Code of Ethics additional verification on the credit card presented; and to further explain to employees what constitutes ethical conduct and to • Constant monitoring and regular amendment of the parameters provide guidance on how to make ethically correct decisions. and rules within Cybersource, based on fraudulent behaviours and trends. Confidential Reporting Process The Payments Association of South Africa (PASA) has continued to drive The Group recognises the need for a confidential reporting process (whistle its enforcement of 3D Secure on all ‘card not present’ transactions. Online blowing) covering fraud and other risks. In line with its commitment to retailers (excluding airlines), went live with 3D Secure in February 2014.
42 Integrated Annual Report 2014
The results and feedback from this activation have not been very positive Competition and the Group remains concerned about the readiness of the inter-banking The Group supports and adheres to the relevant competition laws systems and communication networks to cope with the additional volumes applicable to it. No legal action for anti-competitive conduct, anti-trust of electronic messaging, come the activation of 3D Secure within the airline or monopoly practices was instituted against the Group during the industry. The airline industry accounts for approximately 80% of all online period under review. sales in South Africa. Activation of 3D Secure in the airline environment will therefore result in significant strain on the inter-banking systems and Compliance communication networks. Regardless of the aforementioned concerns, Compliance with all relevant laws, regulations or codes is integral to the the Group has completed the development work for implementation of Group’s risk management approach. Other than a R70,000 fine imposed 3D Secure and remains committed to this initiative in its bid to reduce by the Financial Services Board and a private censure that was received its exposure to fraud. from the JSE in respect of an incorrect SENS announcement released in November 2013 reflecting that certain Directors had purchased shares as Travel Bank Fraud opposed to having sold shares, and which was immediately corrected once Travel Bank is a tool used by the Group to provide, amongst other things, the Company became aware of the mistake, there has been no significant a credit to customers inconvenienced due to flight delays, cancellations, non-compliance by, nor significant fines, nor non-monetary sanctions or overbookings, etc. In March 2013 there were substantial credits allocated prosecutions against the Group during the period under review. to Travel Bank accounts that appeared unusual relative to the size of the expected account. Following a detailed investigation, the Group established Customer Privacy and Information Security that substantial credits had been fraudulently allocated to various Travel Information security policies are in place throughout the Group regulating, Bank accounts by a supervisor in the Group’s outsourced call centre in inter alia, the processing and protection of own and third party information. Cape Town. It was further established that the supervisor in question was working within a syndicate advertising cheap flights on both kulula and Legitimate requests for information can be made in terms of the Promotion British Airways through Facebook. Four people were arrested in connection of Access to Information Act. No requests for information we made in with this fraud, all of whom have since appeared in court. The first accused terms of the Act in the review period. entered into a plea agreement with the State. The Group expects that accused two and three will receive minimum sentences of ten years but The Protection of Personal Information Act (Act No. 4 of 2013) has been the outcome of court proceedings, which commenced in June 2014, is passed in South Africa, but the date of implementation, apart from a few awaited. Accused four entered into a plea agreement with the State and enabling sections, has yet to be determined. The Act will require further it is expected that the accused will to be fined a maximum of R200,000. actions on the part of the Group to ensure privacy of personal information. The Group has, in addition, implemented a number of corrective measures The Group will put measures in place to ensure that it will be able to to prevent the recurrence of this kind of fraud. comply with the requirements of the Act.
Electronic Fund Transfer (EFT) fraud There were no complaints against the Group regarding breach of customer The Group experienced a loss of approximately R1 million resulting from privacy or loss of customer data during the period under review. EFT fraud. Investigations to date indicate that a yet unknown external party managed to intercept certain electronic communications between the Group and one of its suppliers. The fraudster ‘disguised’ himself, by electronic means, Financial Reporting and Going Concern as an employee of the supplier and, together with fraudulently completed The Directors are responsible for the preparation of the Annual Financial documentation, succeeded in having the Group amend the EFT beneficiary Statements in a manner that fairly and accurately represents the state details of the supplier to his/her own bank account details. This subsequently of affairs and results of the Group. The Directors are responsible for led to the Group making a supplier payment into a fraudulent bank account. adopting sound accounting practices, maintaining adequate accounting The fraud was duly reported to the South African Police Service. Additional records, ensuring an effective system of internal controls and for controls were implemented with immediate effect, including the online safeguarding of assets. The Financial Statements of the Group have confirmation of beneficiary banking details before making amendments to been prepared on the going-concern basis and the Board is of the any EFT beneficiary details. The Group is further exploring the possibility view that the Group has adequate resources to continue operating for of pursuing a claim against the bank at which the fraudulent bank account the foreseeable future. was opened, as the bank account holder is listed as a known fraudster per the South African Banking Risk Information Centre.
43 Corporate Governance (continued)
Board of Directors annually. The Board’s primary functions include, amongst others:
Composition of the Board • Determining the Group’s vision; • Determining and providing strategic direction to the Group; The Group has a unitary Board structure. The composition of the Board • Adoption of strategic plans and ensuring that same, through the is set out on pages 61 and 62. The roles of the Chairman and the Chief Executive Directors, are communicated to the applicable management Executive Officer (CEO) are separate. The Non-executive Directors, with levels and further ensuring that the objectives as set out in the strategic a strong independent element, are of sufficient number to ensure that no plan are met; single individual has unfettered power of decision-making and authority. As • Approving and evaluating the annual business plan and budget at 30 June 2014, the Board comprised eight independent Non-executive compiled by management and monitoring management on the Directors, two Non-executive Directors and four Executive Directors (including implementation of the approved Annual Budget and Business Plan; the alternate Directors) as required by the Listings Requirements of the JSE. • Approving the Group’s Financial Statements and Interim Reports; • Appointing the CEO who reports to the Board and ensuring that The Board is considered to be appropriately skilled with regard to its succession is planned; responsibilities and the activities of the Group and are involved in all material • Determining Director selection and evaluation; business decisions enabling them to contribute to the strategic and general • Evaluating the viability of the Group on a going-concern basis; guidance of management and the business. Newly appointed Directors • Ensuring that the Group has appropriate risk management, internal are informed of their fiduciary duties and in this regard are provided with control and regulatory compliance procedures in place. It further a Director’s Manual which contains guidelines regarding their duties and identifies and continually reviews key risks as well as the mitigation responsibilities as Directors. The skills and experience profiles of the Board thereof by management; members are regularly reviewed to ensure an appropriate and relevant • Approving major capital expenditure and significant acquisitions and Board composition. disposals; • Monitoring non-financial aspects pertaining to the business of the Dealing in Securities Group; The Group has a formal policy in place to ensure that the Directors and • Monitoring compliance with laws, regulations and the Group’s Code senior management do not trade in the Group’s shares during price-sensitive of Ethics; or closed periods. In terms of the policy, closed periods commence from • Ensuring that the remuneration of Directors and Executive Managers the last day of the financial year or the last day of the end of the first six occurs in accordance with the Group’s remuneration policy; month period of the financial year up to the day after the publication of the • Identifying and managing potential conflicts of interest; annual or interim results. Directors are required to obtain approval from • Settling principles for recommending the use of external auditors for the Chairman or a designated Director before dealing in any securities. non-audit services; • Establishing Board committees with clear terms of reference and Conflict of Interest responsibility; All Board members and the Group Company Secretary are required • Defining levels of authority and delegating required authority to the to disclose their shareholding in the Group, other directorships and Committees and management; potential conflicts of interest. Where potential conflicts of interest exist, • Considering and, if appropriate, declaring payment of dividends to Directors are expected to recuse themselves from relevant discussions shareholders; and decisions. In addition, employees within the Group are obliged to • Evaluating the effectiveness of the Board and its committees; disclose any conflict of interest. • Conducting an evaluation of the Group Company Secretary; and • Ensuring the creation of sustainable shareholder value. Role and Function of the Board The Board retains full and effective control of the Group and is accountable To fulfil their responsibilities adequately, Board members and members and responsible for the performance and affairs of the Group. All material of the sub-committees receive Board and sub-committee agendas resolutions have to be approved by the Board. The Board is accountable ahead of any meeting. In addition, Directors have unrestricted access to all of the Group’s stakeholders for exercising leadership, integrity and to timely financial and other information relating to the Group as well as judgment in pursuit of the strategic goals and objectives of the Group. free access to senior management and the Group Company Secretary. Formal requirements specifying the responsibilities of and type of conduct During the financial year under review, the Board received presentations expected from the Directors, the Group Company Secretary, the Chairman from various senior Executive Managers enabling it to explore specific and the CEO are set out in the Group’s Board Charter, which is reviewed issues and developments in greater depth.
44 Integrated Annual Report 2014
Induction of New Directors and Independent Advice The Group Company Secretary Newly appointed Directors are informed of their fiduciary duties by the The Group Company Secretary plays a pivotal role in the continuing Group Company Secretary. Newly appointed Directors receive information effectiveness of the Board, ensuring that all Directors have full and timely on the JSE Listings Requirements and the obligations therein imposed access to the information that helps them to perform their duties and upon Directors, and are informed of any amendments to legislation and obligations properly, and enables the Board to function effectively. regulations. The Group Company Secretary is responsible for providing guidance to Individual Directors may, after consulting with the Chairman or the CEO, the Board collectively and to the Directors individually with regard to their seek independent professional advice, at the expense of the Group, on duties, responsibilities and powers. any matter connected with the discharge of his/her responsibilities as a Director. The Group Company Secretary’s key duties with regard to the Directors include, but are not limited to, the following: Board Evaluations The Board conducts informal evaluations of its performance. During the • Collating and distributing relevant information such as corporate evaluation process, the Board identified improved sustainability management announcements, investor communications and any other developments and governance of information technology as areas requiring attention. affecting the Group or its operations; • Inducting new Directors. This includes a briefing on their fiduciary Board Meetings and Attendance and statutory duties and responsibilities (including those arising from the JSE Listings Requirements); The Board meets at least four (4) times a year with the proviso that • Providing regular updates on effective and proposed changes to additional meetings could be called when certain important matters arise laws and regulations affecting the Group and/or its businesses; and and measures exist to accommodate resolutions that have to be approved • Monitoring of Directors’ dealings in securities and ensuring that between meetings. Details of attendance at Board meetings are provided prior approval to deal in securities is obtained from the Chairman or on page 61 and 62 of this Report. another designated Director. Retirement and Re-election of Directors The Group Company Secretary reports to the CEO and has a direct channel Under the Group’s Memorandum of Incorporation, a third of the Directors of communication to the Chairman. He meets with the Chairman before each retire by rotation each year and are eligible for re-election by shareholders Board and general meeting to prepare for and discuss important issues. at the Annual General Meeting. Details of the Directors retiring by rotation are set out in the Notice of Annual General Meeting. The appointment of He is responsible for the functions specified in section 88 of the Companies Directors is a function of the entire Board based on recommendations Act 2008 (as amended). All meetings of shareholders, Directors and made by the Nominations Committee. Board committees are properly recorded as per the requirements of the Act. The removal of the Group Company Secretary would be a matter Chairman for the Board as a whole. The Group’s Chairman, Mr P van Hoven, is an independent Non-executive Director. In addition to playing a key role within the Group, he provides The Group Company Secretary is a Director of the Company, albeit an guidance to the Board as a whole and ensures that the Board is efficient, alternate Director, and a Director of some of the Group’s subsidiaries. The focused and operates as a unit. He acts as a facilitator at Board meetings Board is of the opinion that, in view of the fact that the Group Company to ensure a flow of opinions, and attempts to lead discussions to optimal Secretary is an alternate Director of the Group, an arm’s length relationship outcomes in the interests of good governance. is not feasible. However, the Board annually evaluates the competency and effectiveness of the Group Company Secretary as required in terms The CEO of the JSE Listings Requirements. The Board has considered and is The CEO, who reports to the Board, is responsible for the running of satisfied that no conflict of interest exists and that the Group Company the day-to-day business of the Group and for the implementation of Secretary is competent and has the requisite qualifications and experience policies and strategies adopted by the Board. The Executive Directors to effectively execute his duties. and Executive Managers of the various business units and subsidiaries assist him in this task. The name and qualifications of the Group Company Secretary appear on page 62 of this Report.
45 Corporate Governance (continued)
Executive Management The Chairman of the Board, CEO, Financial Director, Chief Audit Executive (CAE) and external auditors attend the Audit Committee The Group’s Executive Management Committee meets on a regular basis meetings by invitation. The Committee held three (3) meetings during to consider, inter alia, investment opportunities, operational, financial and the reporting period. other aspects of strategic importance to the Group. Executive Managers have roles and responsibilities that are specific to their levels of authority. Composition of Committee and Attendance
Membership Attendance Board Committees Chairman Dr PJ Welgemoed 2/3 The Board has created an Audit Committee, Risk Management Committee, Members Mr KI Mampeule 3/3 Nominations Committee, Remuneration Committee and a Social and Ms WD Stander 2/3 Ethics Committee, as set out below, to enable it to properly discharge Mr GJ Halliday 3/3 its duties and responsibilities and to effectively fulfil its decision-making Mr HR Brody 0/0 process. The Board and its committees are supplied with relevant and (Appointed to the Audit Committee timely information enabling them to discharge their responsibilities. on 9 June 2014)
While the Board remains accountable for the performance and affairs The Committee, amongst other things, identifies and evaluates the of the Group, it does delegate certain functions to its committees adequacy of internal controls and provides effective communication and management to assist it in carrying out its functions, duties and between Directors, management and the internal and external auditors. responsibilities. The Chairman of each committee reports to the Board The responsibilities of the Audit Committee are contained in a formal at each Board meeting. mandate from the Board (terms of reference) which is reviewed annually with the main responsibilities being, amongst others, to: The Chairmen of the committees, other than the Social and Ethics Committee, which has a Non-executive Director as its Chairman, are • Perform the statutory functions of an Audit Committee in terms of all independent Non-executive Directors and are requested to attend the Companies Act and other functions delegated by the Board; the Group’s Annual General Meeting to answer any questions posed • Review and recommend to the Board for approval the Group’s by shareholders. Integrated Annual Report, interim reports and results announcement; • Nominate and approve the terms of engagement and remuneration The Board committees have specific terms of reference, appropriately skilled of registered auditors, who in the opinion of the Committee, are members, membership by Non-executive Directors who act independently, independent of the Group, and ensure that their appointment complies Executive Directors and Executive Management participation and access with the provisions of the Companies Act, King III and other legislation to specialist advice when considered necessary. relating to their appointment; • Review and evaluate the effectiveness and performance of the external Audit Committee auditors as well as the scope, adequacy and costs of audits to be The role of the Audit Committee is to review the Group’s financial position performed and report there-on to the Board and to the shareholders; and make recommendations to the Board on all financial matters and • Evaluate and approve the external auditors’ plans, findings and internal controls. The Committee also reviews the nature and extent reports; of non-audit services provided by the external auditors to ensure that • Receive and deal appropriately with any concerns or complaints, the fees for such services do not become so significant as to call into whether received internally or externally, dealing with the Group’s question their independence. The Chairman of the Committee reports on accounting practices and internal audits, the Financial Statements, the Committee’s activities at each Board meeting. internal financial controls or related matters; • Monitor and evaluate the performance of the Financial Director; The members of this Committee are independent Non-executive Directors. • Identify and evaluate exposure to financial risks; All members are financially literate and all possess substantial business • Evaluate the effectiveness of the internal auditing function, including its and financial expertise and comply with section 94 and Regulation 42 of activities, scope and adequacy and receive and approve the Internal the Companies Act. The Committee meets at least three (3) times per Audit Plan, internal audit reports and material changes to same; year. Both internal and external auditors have unrestricted access to the • Evaluate procedures and systems including, but not limited to, internal Committee. controls, disclosure controls and the internal audit function;
46 Integrated Annual Report 2014
• Consider legal matters which could financially affect the Group; and • Review reports concerning risk management that are to be included • Recommend principles for the use of external auditors for non-audit in the Integrated Annual Report to ensure that such reporting is timely, services and ensure that the fees for such services do not become comprehensive and relevant; and so significant as to call into question their independence. • Evaluate procedures and systems introduced including, without limitation, the Company’s information technology systems. The Committee’s report describing how it discharges its statutory duties and the additional duties assigned to it by the Board is included in this For more information regarding the Group’s risk management and the Integrated Annual Report on pages 52 to 54. material issues facing the Group that have been identified as a result of the Group’s risk management procedures, refer to the Internal Control Risk Management Committee and Risk Management Report. The role of the Risk Management Committee is to review the risks facing the Group’s business and to ensure compliance with all required legislation, Nominations Committee regulations and codes affecting the business. The members of this Committee, The members of this Committee are all Non-executive Directors who act who also serve as members of the Audit Committee, are independent independently. Non-executive Directors. The Committee meets at least three (3) times per year. The Chairman of the Board, CEO, Financial Director, CAE and This Committee, together with the Remuneration Committee, considers external auditors (where appropriate) attend Risk Management meetings by the issue of succession planning at Board and Executive Management invitation. The Committee held four (4) meetings during the reporting period. level. The CEO, in consultation with the Board Chairperson, Remuneration and Nominations Committees, is responsible for ensuring that adequate Composition of Committee and Attendance succession plans are in place.
Membership Attendance The Committee met once during the financial year under review. The Chairman Dr PJ Welgemoed 3/4 composition of the Committee and attendance at meetings are set out below: Members Mr KI Mampeule 4/4 Ms WD Stander 2/4 Composition of Committee and Attendance Mr GJ Halliday 3/4 Mr HR Brody 0/0 Membership Attendance (Appointed to the Committee on Chairman Mr P van Hoven 1/1 9 June 2014) Members Mr JM Kahn 1/1 The main responsibilities of the Risk Management Committee are, Mr KI Mampeule 1/1 amongst others, to: Mr MD Moritz 1/1
• Oversee the development and annual review of a Risk Management Amongst others, the main responsibilities of the Nomination Committee Policy and Plan for recommendation to the Board for approval; are to: • Monitor implementation of the Risk Management Policy and the Plan; • Make recommendations to the Board concerning the levels of • Make recommendations on the appointment of new Executive and tolerance and appetite and ensure that risks are managed within Non-executive Directors; the levels of tolerance and appetite as approved by the Board; • Make recommendations on the composition of the Board generally • Ensure that the Risk Management Plan is widely disseminated and the balance between Executive and Non-executive Directors; throughout the Group and integrated in the day-to-day activities of • Review plans for succession and ensure their adequacy, for the the Group; Chairperson, the CEO and Executive Directors; • Ensure that risk management assessments are performed on a • Review the Board structure, size and composition and make continuous basis; recommendations with regard to any adjustments deemed necessary; • Ensure that frameworks and methodologies are implemented to and increase the possibility of anticipating unpredictable risks; • Ensure that Board appointment policies and procedures are formal • Ensure that management considers and implements appropriate and transparent and a matter for the Board as a whole, and that risk responses; such appointment policies and procedures are reviewed and updated • Liaise closely with the Audit Committee to exchange information when necessary. relevant to risks;
47 Corporate Governance (continued)
Remuneration Committee are suitably experienced. The Chairman of the Board, Financial Director, The members of this Committee are all independent Non-executive CAE, representatives from other assurance providers, professional advisors Directors. The CEO attends meetings by invitation only and is not entitled and Board members are entitled to attend Committee meetings. The to vote. The CEO does not participate in discussions regarding his own Committee met four times during the year under review. The composition remuneration. The Committee met twice during the financial year under of the Committee and attendance at meetings are set out below: review. The composition of the Committee and attendance at meetings is set out below. Composition of Committee and Attendance Membership Attendance Composition of Committee and Attendance Chairman: MD Moritz 4/4 Membership Attendance Members: ER Venter 4/4 Chairman Mr JM Kahn 1/2 DH Borer 4/4 Members Mr RC Sacks 1/2 KI Mampeule 3/4 Mr P van Hoven 2/2 KV Gorringe 4/4 Ms WD Stander 1/2 EA Liebetrau 4/4 WD Stander 0/0 The remuneration policy and the execution thereof is the responsibility of (Appointed to the Committee on the Remuneration Committee. 9 June 2014)
The fees for Non-executive Directors and the remuneration packages of The responsibilities of the Social and Ethics Committee are, amongst Executive Directors for the financial year under review are disclosed in the others, to: Remuneration Report on page 63 of this Report. As recommended by King III, the Group’s remuneration policy was approved by shareholders • Assist the Board in ensuring that the Group is compliant with all of the Group at its last Annual General Meeting, held on 30 October 2013, legislation and other requirements relating to social and economic by way of a non-binding advisory vote. development and remains a good corporate citizen by monitoring the sustainable development performance of the Group; and Amongst other things, the main responsibilities of the Remuneration • Perform the statutory functions of a Social and Ethics Committee in Committee are to: terms of the Companies Act and other functions delegated to it by the Board. • Determine the Group’s general policy on remuneration as well as specific policies in respect of Executive Directors’ and Executive The Committee’s report describing how it discharged its statutory duties Managers’ remuneration; is included in the Integrated Report on page 58. • Review and determine remuneration packages for Executive Directors and Executive Management including, but not limited to, basic salary, Discharge of Responsibilities annual bonuses, benefits, performance-based incentives and Share The Board is of the view that the committees have discharged their Incentive Scheme awards; responsibilities for the financial year under review in compliance with their • Annually appraise the performance of the CEO; terms of reference. • Annually review the general level of remuneration for Directors of the Board as well as its committees and recommend proposals in this Internal Control respect for approval by shareholders at general meetings; and • Make recommendations in respect of awards from the Comair Share Incentive Scheme. Internal Control Systems The Board has responsibility for ensuring that the Group implements Social and Ethics Committee and monitors the effectiveness of its systems of internal control. The The role and responsibilities of the Committee are codified in a mandate identification of risk and the implementation and monitoring of adequate from the Board (terms of reference), which is reviewed annually. The systems of internal control to manage both financial and operational members of this Committee consist of independent Non-executive risk are delegated to the CAE, who in turn makes recommendations to Directors, Executive Directors and Senior Executives of the Group who Executive Management as well as to the Audit Committee.
48 Integrated Annual Report 2014
While all internal control systems do have inherent shortcomings, the and follow-up audits are concluded in areas where weakness is identified. Group’s internal control system is designed to provide reasonable assurance The Internal Audit Plan, approved by the Audit Committee, is based on risk as to the reliability of financial information and in particular the Financial assessments which are of a continuous nature, so as to identify not only Statements, as well as to safeguard, verify and maintain accountability of existing and residual risk, but also emerging risks and issues highlighted its assets and to detect fraud and potential liability, while complying with by the Committee and senior Executive Management. applicable laws and regulations. External Audit The Group’s external auditors consider the internal control systems of the The independence of the external auditors is recognised. The Audit Group as part of their audit, and advise on deficiencies when identified. Committee meets with external auditors to review the scope for the external audit, and any other audit matters that may arise. The external auditors Internal Audit attend Audit and Risk Committee Meetings and have unrestricted access The internal audit function is an independent appraisal mechanism which to the Chairmen of the Committees. The Audit Committee is responsible evaluates the effectiveness of the applicable operational activities, the for nominating the Company’s external auditors and determining the attendant business risks and the systems of internal controls, so as to terms of engagement. bring material deficiencies, instances of non-compliance and development needs to the attention of the Audit Committee, external auditors and Investor Relations operational management for resolution. The CAE co-ordinates with the The Board is committed to keeping shareholders and the investor community external auditors so as to ensure proper coverage and minimise duplication informed of developments in the Group’s business. For further information of effort. Internal audit plans are tabled at the Audit Committee meetings in this regard, please refer to the Sustainable Development Report.
Summary King III Checklist Applied/ Explanation/ partially applied/ IoDSA GAI compensating Principle Principle description not applied score practices Not applied commentary Principle 2.1 The Board acts as the focal point for Applied AAA and custodian of corporate governance Principle 2.2 The Board appreciates that the Applied AAA strategy, risk, performance and sustainability are inseparable Principle 2.3 The Board provides effective leadership Applied AAA based on ethical foundation Principle 2.4 The Board ensures that the company Applied AAA is, and is seen to be, a responsible corporate citizen Principle 2.5 The Board ensures that the company Applied AAA ethics are managed effectively Principle 2.6 CHAPTER 3: Audit Committees Applied AAA Principle 2.7 CHAPTER 4: The governance of risk Applied AA Principle 2.8 CHAPTER 5: The governance of Applied AAA information technology Principle 2.9 CHAPTER 6: Compliance with laws, Applied AAA rules, codes and standards Principle 2.10 CHAPTER 7: Internal audit Applied AAA Principle 2.11 CHAPTER 8: Governing stakeholder Applied AA relationships Principle 2.12 CHAPTER 9: Integrated reporting and Applied AAA disclosure
49 Corporate Governance (continued)
Applied/ Explanation/ partially applied/ IoDSA GAI compensating Principle Principle description not applied score practices Not applied commentary Principle 2.13 CHAPTER 7 and 9: The Board reports Applied AAA on the effectiveness of the company’s internal controls Principle 2.14 The Board and its Directors act in the Applied AAA best interests of the company Principle 2.15 The Board will/has consider/ed Applied AAA business rescue proceedings or other turnaround mechanisms as soon as the company has been/may be financially distressed as defined in the Companies Act (Act No. 71 of 2008) Principle 2.16 The Board has elected a Chairman Applied AAA of the Board who is an independent Non-executive Director. The CEO of the company does not also fulfil the role of Chairman of the Board Principle 2.17 The Board has appointed the Chief Applied AAA Executive Officer and has established a framework for the delegation of authority Principle 2.18 The Board comprises a balance of Applied AA power, with a majority of Non-executive Directors. The majority of Non-executive Directors are independent Principle 2.19 Directors are appointed through a Applied AA formal process Principle 2.20 The induction of and ongoing training, Partially not BB Although no induction and ongoing as well as the development of Directors applied training programmes exist, Comair are conducted through a formal takes note of training received process by Directors outside of the company and Directors receive informal advice and professional mentoring from the senior and more experienced Directors as well as relevant information included in the Directors’ Manual from time to time. Principle 2.21 The Board is assisted by a competent, Applied AAA suitably qualified and experienced Company Secretary Principle 2.22 The evaluation of the Board, its Applied AA committees and individual Directors is performed every year Principle 2.23 The Board delegates certain functions Applied AAA to well-structured committees without abdicating from its own responsibilities Principle 2.24 A governance framework has been Applied AAA agreed upon between the Group and its subsidiary Boards
50 Integrated Annual Report 2014
Applied/ Explanation/ partially applied/ IoDSA GAI compensating Principle Principle description not applied score practices Not applied commentary Principle 2.25 The company remunerates its Directors Applied AAA and Executives fairly Principle 2.26 The company has disclosed the Applied AAA remuneration of each individual Director and prescribed officer Principle 2.27 The shareholders have approved the Applied AAA company’s remuneration policy
51 Audit Committee Report
This report is presented by the Group’s Audit Committee (“the Committee”) approved by the Board and the shareholders in respect of the financial year ended 30 June 2014. It is prepared in accordance with the recommendations of King III and the requirements of the Companies Act (Act No. 71 of 2008) as amended, and describes how the Committee has discharged its statutory duties in terms of the Companies Act and the additional duties assigned to it by the Board in respect of the financial year ended 30 June 2014.
Audit Committee Mandate The Committee has adopted a formal mandate setting out its responsibilities and functioning that has been approved by the Board of Directors (Board) and will be reviewed annually. The Committee has conducted its affairs in compliance with this mandate and is satisfied that it has fulfilled all its statutory duties and duties assigned to it by the Board during the financial year under review, as further detailed below.
Composition and Meetings The Committee consists of five (5) independent Non-executive Directors and meets at least three (3) times per annum.
The Chairman of the Board, CEO, Financial Director, Chief Audit Executive (CAE) and external auditors attend Committee meetings by invitation.
During the period under review the Committee held three (3) meetings.
Date of No. of Meetings Committee Members’ Name Appointment Qualifications held during year Attendance Dr PJ Welgemoed 28/03/1996 BCom (Hons), MCom, DCom 3 2/3 Mr KI Mampeule 05/09/2005 BA, MSc, MBA 3 3/3 Ms WD Stander 15/09/2008 BA (Hons), MBA 3 2/3 Mr GJ Halliday 06/06/2013 BA (Hons), MBA 3 3/3 Mr HR Brody 09/06/2014 BAcc (Hons) 3 0/0
Abridged curricula vitae of the Committee members appear on pages 117 to 119 of this Integrated Annual Report.
The Board re-appointed the Committee members and appointed a new member, which appointments are subject to shareholders re-electing the Committee members at its Annual General Meeting to be held on 5 November 2014.
Role and Function of the Committee The roles and functions of the Committee, including its statutory duties, are set out in the Corporate Governance Report to be found on pages 46 and 47 of this Integrated Annual Report.
The Committee is satisfied that it has fulfilled all its statutory duties, including those prescribed by the Companies Act, and duties assigned to it by the Board during the financial year under review. In addition, the Committee did not receive or deal with any concerns related to matters listed in section 94(7) (g)(i)–(iv) of the Companies Act.
External Audit The Committee has, during the period under review, nominated external auditors, Grant Thornton (Jhb) Inc. (Grant Thornton), approved its fee and determined its terms of engagement. The appointment will be presented to shareholders of the Group at the Annual General Meeting for approval. The Committee has further satisfied itself that Grant Thornton is accredited and appears on the JSE list of Accredited Auditors and that the designated auditor is not disqualified from acting as such. The Committee has further satisfied itself that the external auditors, Grant Thornton, are independent of the Group as contemplated in sections 90(2)(b), (c) and 94(8) of the Companies Act.
There is a formal policy that governs the process whereby the external auditors are considered for non-audit related services. The Committee approved the terms of the policy for the provision of non-audit services by the external auditors and approved the nature and extent of non-audit services that the
52 Integrated Annual Report 2014
external auditors may provide. During the period under review, the external auditors did provide non-audit services to the Group, namely in the form of tax advice and assurance on selected information in this Integrated Annual Report. The use of the external auditors for such services was pre-approved by the Committee.
Internal Financial Controls The Committee is responsible for assessing the Group’s systems of internal financial controls and has considered reports from the internal and external auditors and has satisfied itself about the adequacy and effectiveness of the Group’s system of internal financial controls.
Expertise and Experience of the Financial Director and Finance Function The Committee recommended that Ms Kirsten King, a registered Chartered Accountant, be appointed as the Group’s Financial Director, which recommendation was approved by the Board. The Committee is of the view that Ms King has substantial knowledge of the airline industry, having served as the Group Revenue Accountant since 2011. The Committee performed a review of the Financial Director and the finance function and the Committee is satisfied with the expertise and experience of the Financial Director and the appropriateness of the finance function.
Internal Audit Internal audit forms an integral part of the Group’s Risk Management Process and system of internal controls. The Committee is satisfied with the independence, quality and scope of the internal audit function. Mr Sean Percival Miller was appointed as Chief Audit Executive (CAE). The CAE has developed a sound working relationship with the Committee in that he:
• Provides an objective set of eyes and ears across the Group; • Provides assurance and awareness on risks and controls specific to the Group and the industry in which he is involved; • Has positioned himself as a trusted strategic adviser to the Committee; • Confirms to the Committee at least once a year the independence of the internal audit function; and • Communicates regularly with the Committee Chairman.
Further details of the Group’s internal audit function are contained in the Corporate Governance Report. The Committee has considered and recommended the Internal Audit Charter for approval by the Board. The CAE’s annual audit plan was approved by the Committee.
Risk Management The Board has assigned oversight of the Group’s risk management function to the Risk Management Committee. The members of the Audit Committee are also members of the Risk Management Committee. The Committee fulfils an oversight role regarding financial reporting risks, internal financial controls and fraud risk as it relates to financial reporting and safety and security issues. Further details of the Group’s risk management function can be found in the Corporate Governance Report and the Internal Control and Risk Management Report.
The Committee is satisfied that the system as well as the process of risk management is effective.
Financial Statements The Committee has reviewed the Financial Statements of the Group and is satisfied that they comply with International Financial Reporting Standards.
Compliance The Committee is responsible for reviewing any major breach of relevant legal, regulatory and other responsibilities. The Committee is satisfied that there has been no material non-compliance with laws and regulations, apart from the following:
During November 2013, the Group issued an incorrect SENS announcement indicating that certain Directors had purchased shares as opposed to having sold same. The announcement was corrected as soon as the mistake came to the Group’s attention. As a result of the incorrect SENS announcement, the Group received a fine of R70,000 from the Financial Services Board (FSB) and a private censure from the JSE. The Group, on the recommendation of the Audit Committee, has enhanced its internal policies and procedures for approving and releasing SENS announcements.
53 Audit Committee Report (continued)
Going Concern The Committee, based on an assessment received from Executive Management, is of the view that the Group will be a going concern for the foreseeable future.
Duties Assigned by the Board The Committee fulfils an oversight role regarding the Group’s Integrated Annual Report and the reporting process including the systems of internal financial controls. It is responsible for ensuring that the internal audit function is independent and has the necessary resources, standing and authority to enable it to effectively discharge its duties. The Committee also oversees co-operation between the internal and external auditors, and serves as a link between the Board and their functions.
Whistle Blowing The Committee is satisfied that all instances of whistle blowing have been appropriately dealt with during the period under review.
Sustainability Reporting The Committee recommended to the Board the appointment of Grant Thornton, an external independent assurance provider, to perform an assurance engagement with the purpose of expressing a limited assurance opinion in terms of ISAE 3000 on whether selected key performance indicators and specific disclosures as contained in the Integrated Annual Report have been fairly stated and meet reasonable reporting expectations. The assurance statement can be accessed via the Company’s website www.comair.co.za.
The Committee has considered the Group’s sustainability information as disclosed in the Integrated Annual Report and has assessed its consistency with operational and other information known to Committee members, and for consistency with the Annual Financial Statements. The Committee is satisfied that the sustainability information is reliable and consistent with the financial results.
Recommendation of this Integrated Annual Report for Approval by the Board The Committee recommended this Integrated Annual Report for approval by the Board on 8 September 2014.
The Committee is satisfied that it has complied with all its legal, regulatory and other responsibilities during the period under review.
Dr PJ Welgemoed Chairman: Comair Limited Audit Committee
8 September 2014
54 Integrated Annual Report 2014
Remuneration Report
The Group has a dedicated Board Committee that, inter alia, determines the governance of remuneration matters, Group remuneration philosophy, remuneration of Executive Directors and other Senior Managers, as well as the compensation of Non-executive Directors, which is ultimately approved by the shareholders.
Detail on the mandate, composition and attendance of meetings held by the Remuneration and Nominations Committees are set out in the Corporate Governance Report.
Remuneration Approach The Group’s remuneration approach aims to ensure that it remunerates its Directors and Senior Managers in a manner that supports the achievement of the strategic objectives of the Group, while attracting and retaining scarce skills and rewarding high levels of performance. The remuneration offered by the Group needs to be competitive in order to attract, retain and incentivise high calibre staff.
The remuneration philosophy is based on the following principles:
• Affordability; • Internal fairness; and • External fairness.
The remuneration approach, which guides the level of salaries of all Directors and Senior Management, is aimed at:
• Ensuring that no discrimination occurs; • Recognising exceptional and value adding performance; • Encouraging team performance and participation; • Promoting cost-effectiveness and efficiency; and • Achieving the strategic objectives of the Group.
In order to balance external equity with affordability and to ensure that market-related salaries are offered to staff, the Group participates in several salary surveys and uses that information for benchmarking purposes.
Remuneration Structures Management remuneration structures comprise fixed and variable components as follows:
• Fixed Pay: base salary and benefits; and • Variable Pay: short-term merit bonus and a long-term Executive Incentive Scheme based on Group profits before tax and the Group’s share price performance (payable every three years).
These structures are detailed below:
Fixed Pay
Base salary Market data is used to benchmark individual salary levels for Directors and Senior Managers. This information, combined with the individual’s performance assessment, is the key consideration for the annual salary reviews.
Retirement benefits The Group offers membership to a defined contribution pension fund to all permanent employees in South Africa. This fund is part of an umbrella arrangement known as Evergreen Superfund and is administered by Old Mutual.
55 Remuneration Report (continued)
Other benefits This includes benefits such as medical aid, risk benefit insurance (i.e. death and disability) to permanent employees in South Africa, and leave.
Pilots Pilots are currently guaranteed a 13th cheque.
Variable Pay
Short-term incentives Executive Directors and Senior Managers participate in a short-term, cash based management incentive scheme. Payment in terms of the short-term incentive scheme is dependent upon achievement against key performance criterion, namely profit after tax and subject to three (3) components:
• Achievement by the qualifying employee of key performance indicators (40%); • Group profit performance (40%); and • 20% of the bonus is payable at the discretion of the Board.
The payment of any short-term incentive to Executive Directors and Senior Managers is subject to Board approval.
Employees who do not participate in the short-term incentive scheme would be entitled to a 13th cheque, or a portion thereof, based on personal performance and company affordability and a discretionary amount based on the Group’s performance. This does not apply to Pilots, who are guaranteed a 13th cheque.
Long-term Executive Incentive Scheme Executive Directors and designated Senior Managers who were in the employ of the Group on or prior to 31 December 2012 and are still in the employ of the Group as at 30 September 2015 participate in the long-term Executive Incentive Scheme (“the Scheme”).
The purpose of the Scheme is to retain talent as well as to reward participants of the Scheme based on the Group’s performance. The Scheme comprises two components as follows:
Profit linked component (35%) In terms of this component, 7% of the aggregated headline profits before tax (excluding profits from damages awards and profits from new business ventures that are not managed by the participants), made by the Group during the 2013, 2014 and 2015 financial years inexcess of R250 million, but capped to a maximum of R17.5 million, would be allocated to participants in the Scheme in proportion to their basic salary versus the combined basic salary of the participants in the Scheme.
Share price linked component (65%) This component is based on the trade weighted average share price of the Group for the six months to 30 June 2015, with the bonus payable to participants being the difference between the Group share price as determined on 30 June 2015 and a share price of R1.50c, but capped to a maximum of R32.5 million.
Executive Directors’ Remuneration Remuneration of Executive Directors is compared to the market for comparable roles in companies of similar size.
The annual bonus payable to Executive Directors in terms of the short-term management incentive scheme is limited to 100% of their annual base salary.
Executive Directors have standard service contracts with no fixed duration, no restraint and with a one-month notice period. This is currently under review.
Details of the remuneration of individual Executive and Non-executive Directors are set out in the Report of the Directors on pages 63 and 64.
56 Integrated Annual Report 2014
Non-executive Directors’ Remuneration Non-executive Directors do not receive any benefits or share options from the Group apart from Directors’ fees, which fees were approved by shareholders at the Group’s Annual General Meeting on 30 October 2013. The Non-executive Directors’ fees for the year ended 30 June 2014 are included in the joint remuneration payable to the Group’s Non-executive Directors, as indicated in Special Resolution Number 1 in the Notice of Annual General Meeting to be held on 5 November 2014.
The Directors’ fees per meeting, for the financial years ended 30 June 2013 and 30 June 2014, as well as the proposed fee per meeting for the financial year ending 30 June 2015, are set out in the table below. Members of the Committees are also remunerated for their participation as members of the various Committees.
Directors’ Fees Annual fee Annual fee Annual fee for the year ended for the year ended for the year ended 30 June 2013 30 June 2014 30 June 2015 Meeting R R R Chairperson: Board 1,000,000 1,200,000 1,280,000 Vice-Chairperson: Board 250,000 350,000 374,500 Member: Board 120,000 150,000 160,500
Fee per meeting Fee per meeting Proposed fee per meeting for the year ended for the year ended for the year ended 30 June 2013 30 June 2014 30 June 2015 R R R Chairperson: Audit Committee 10,000 13,000 13,910 Member: Audit Committee 5,000 6,500 6,955 Chairperson: Risk Committee 10,000 13,000 13,910 Member: Risk Committee 5,000 6,500 6,955 Chairperson: Nominations Committee 10,000 13,000 13,910 Member: Nominations Committee 5,000 6,500 6,955 Chairperson: Social and Ethics Committee 10,000 13,000 13,910 Member: Social and Ethics Committee 5,000, 6,500 6,955 Chairperson: Remuneration Committee 10,000 13,000 13,910 Member: Remuneration Committee 5,000 6,500 6,955 Chairperson: Pension fund 10,000 13,000 13,910
57 Social and Ethics Committee Report
The Social and Ethics Committee (the Committee) assists the Board in During the period under review, the following reports relating to the ensuring that the Group is and remains a good and responsible corporate Committee’s functions were produced by Management and reviewed citizen by monitoring the Group’s sustainable development performance, by the Committee: and performing the statutory functions required of a social and ethics committee in terms of the Companies Act as well as the additional • The Group’s standing with respect to consumer relations and functions assigned to it by the Board. The responsibilities and functioning compliance with consumer protection laws; of the Committee are governed by a formal mandate approved by, and • The Group’s compliance with applicable advertising and marketing subject to annual review by, the Board. The Committee is satisfied that laws; it has fulfilled all its statutory duties and the duties assigned to it by the • The Group’s record of sponsorship, donations and charitable giving; Board during the period under review. and • The new B-BBEE codes. The composition and number of meetings held or to be held by the Committee is set out in the Group’s Corporate Governance Report in Each of the above-mentioned reports was analysed in-depth and in one this Integrated Annual Report on page 48. case, namely in the area of donations and charitable giving, Management was requested to identify one particular charitable cause, with whom an The Committee is responsible for developing and reviewing the Group’s ongoing relationship could be created. This resulted in the Group concluding policies with regard to social and economic development and good an arrangement with the Red Cross Children’s Hospital in Cape Town in corporate citizenship; and reporting on the Group’s sustainable development terms of which the Group is providing free travel for patients to the hospital performance and for making recommendations to the Board and/or as well as a donation of R500,000 to assist with the construction of new Management on matters within its mandate. accommodation for family members visiting or staying over with patients. The relationship with the Red Cross Children’s Hospital is expected to The Committee performs a monitoring role with respect to the sustainable continue into the future. All the reports were subsequently approved by development performance of the Group relating, amongst others, to: the Board, upon recommendation by the Committee. The Committee is satisfied with the Group’s standing in the areas reviewed and that the • Environmental, Health and Public Safety, which includes Occupational current level of combined assurance provides the necessary independent Health and Safety; assurance over the quality and reliability of the information presented. • Broad-based Black Economic Empowerment and Employment Equity; The Committee, through one of its members, is required to report on • Labour relations and working conditions; matters within its mandate to the Group’s shareholders at the Group’s • Consumer relationships (advertising, public relations and compliance Annual General Meeting. Shareholders will be referred to this Report, with consumer protection laws); read together with the Sustainable Development Report, at the Group’s • Training and skills development for the Group’s employees; Annual General Meeting on 5 November 2014. • Management of the Group’s environmental impacts; • Ethics and compliance; and • Corporate social investment.
The Committee is satisfied with the Group’s performance in each of the areas listed above and as further reported on in the Sustainable Mr MD Moritz Development section of this Report. Chairman: Social and Ethics Committee
The Committee’s monitoring role also includes the monitoring of relevant 8 September 2014 legislation, other legal requirements or prevailing codes of good practice, specifically with regard to matters relating to social and economic development, good corporate citizenship, the environment, health and public safety as well as labour and employment.
The Committee is further responsible for annually reviewing, in conjunction with Executive Management, the Group’s material sustainability issues and for reviewing and approving the sustainability content included in the Integrated Annual Report.
58 Integrated Annual Report 2014
Report of the Directors
The Directors take pleasure in presenting their report, which forms part of the Annual Financial Statements of the Group for the year ended 30 June 2014.
Nature of Business The main business of the Group is the provision of domestic and regional air services in the Southern African and Indian Ocean Islands market, trading under the names of kulula.com and British Airways. In addition to the foregoing, the Group provides other travel-related services, undertakes third party simulator training and operates airline lounges and currently provides airline catering for its own services.
General Review of Main Activities The Group currently operates a fleet of twenty-six (26) aircraft flying to the destinations set out on pages 4 and 19 of this Report. The Directors have performed the solvency and liquidity test required by the new Companies Act, the outcome of which is that the Group is a ‘going concern’ with adequate resources to continue operating for the foreseeable future.
Financial Results Full details of the financial results are set out on pages 68 to 108 of this Integrated Annual Report.
Dividends Notice is hereby given that a gross cash dividend of 13.0000 cents per ordinary share has been declared payable to shareholders. The dividend has been declared out of income reserves.
The dividend will be subject to a local dividend tax rate of 15% or 1.9500 cents per ordinary share, resulting in a net dividend of 11.0500 cents per ordinary share, unless the shareholder is exempt from paying dividend tax or is entitled to a reduced rate in terms of the applicable double tax agreement. No STC credits were available to be utilised as part of this declaration. The Company’s tax reference number is 9281/874/1/0 and the number of ordinary shares in issue at the date of this declaration is 440,263,099.
In accordance with the provisions of Strate, the electronic settlement and custody system used by the JSE Limited, the relevant dates for the dividend are as follows:
Event Date Last day to trade (cum dividend) Friday, 10 October 2014 Shares commence trading (ex dividend) Monday, 13 October 2014 Record date (date shareholders recorded in books) Friday, 17 October 2014 Payment date Monday, 20 October 2014
Share certificates may not be dematerialised or rematerialised between Monday, 13 October 2014 and Friday, 17 October 2014, both days inclusive.
Share Capital The authorised share capital of the Group remained unchanged during the reporting period under review.
Share Buy-back During the period under review, the Group repurchased 48,913,372 ordinary shares, being approximately 10% of its ordinary share capital, in accordance with a general authority to repurchase shares approved by shareholders at the Group’s Annual General Meeting held on 30 October 2013. The shares were repurchased during November and December 2013, as announced on SENS, as follows:
(a) At the beginning of November 2013, the Group repurchased 29,858,467 ordinary shares at an average price of R2.99 per ordinary share; (b) In and during November and December 2013 the Group repurchased 19,054,905 ordinary shares at an average price of R3.24 per ordinary share; and (c) All shares repurchased were delisted and reverted to authorised but unissued ordinary shares.
59 Report of the Directors (continued)
Issued Share Capital Following a share buy-back, implemented in November and December 2013, as mentioned above, the Group’s issued share capital has reduced from 489,176,471 ordinary shares of 1 cent each to 440,263,099 ordinary shares of 1 cent each.
Subsidiaries and Associates Details of the Group’s subsidiaries and associates are recorded in Notes 4 and 5 of this Integrated Annual Report on pages 84 to 89.
Subsequent Events The Directors are not aware of any matter or circumstance arising since the end of the period under review that would significantly affect or have a material impact on the financial position of the Group.
Directors’ Interest in Share Capital The following Directors of the Group held direct and indirect interests in the issued share capital of the Group at 30 June 2014 as set out below.
2014 2013 Direct Indirect Held by Total Direct Indirect Held by Total Director Beneficial Beneficial Associates Shares % Beneficial Beneficial Associates Shares % MD Moritz - 50,000,000 9,462 50,009,462 11.35 - 50,000,000 9,462 50,009,462 10.23 P van Hoven 204,647 - - 204,647 0.05 204,647 - - 204,647 0.04 ER Venter 1,531,883 - - 1,531,883 0.35 1,531,883 - - 1,531,883 0.31 MN Louw 111,732 - - 111,732 0.03 36,732 - - 36,732 0.01 PJ Welgemoed 118,788 - - 118,788 0.03 118,788 - - 118,788 0.02 KI Mampeule** - - - - 0.0 - - - - 0.0 RS Ntuli** - - - - 0.0 - 5,772,615 - 5,772,615 1.18 DH Borer* 188,000 - - 188,000 0.04 188,000 - - 188,000 0.04 AK Gupta*** - - - - 0.0 - 22,794,439 - 22,794,439 4.66 TOTAL 2,155,050 50,000,000 9,462 52,164,512 11.85 2,080,050 78,567,054 9,462 80,656,566 16.49
* Alternate Director ** Excludes 74,117,647 “A” shares issued to the Thelo Consortium, of which both Mr RS Ntuli and Mr KI Mampeule are members, but not forming part of the Group’s listed share capital, in terms of the Company’s Black Economic Empowerment transaction. Refer to Circular to Ordinary Shareholders issued on 23 August 2006 for further information relating to the Black Economic Empowerment transaction. *** Refers to shares owned by Oakbay Investments (Pty) Ltd, of which Mr Gupta has a 30% direct shareholding and a 10% indirect shareholding.
There have been no changes in the Directors’ interests in share capital between 30 June 2014 and the date of posting of this Report.
Special Resolutions Since its last Integrated Annual Report, the Group passed four (4) special resolutions at its Annual General Meeting held on 30 October 2013, namely:
• A special resolution for approval of Non-executive Directors’ remuneration for 2012/13; • A special resolution for the approval of Non-executive Directors’ remuneration for 2013/14; • A special resolution giving the Group a general authority to re-purchase its shares; and • A special resolution as contemplated in section 45(3)(a)(ii) of the Companies Act, i.e. a general authority to provide financial assistance to related and interrelated companies or corporations.
Other than the aforegoing, no other special resolutions were passed.
As required in terms of section 8.63(i) of the JSE Listings Requirements, no special resolutions were passed by the Group’s subsidiaries relating to
60 Integrated Annual Report 2014
borrowing powers, the object clause contained in the Memorandum of Incorporation or other material matters that affect the Group and the subsidiaries for the period under review.
Board of Directors, Company Secretary and Board Meeting Attendance The names, ages, qualifications, nationality, business addresses, attendance at Board Meetings and occupations of the Directors and the Group Company Secretary who served during the period under review, are set out below.
Name, Age, Qualification Attendance – Gender and Race four (4) Board M = Male Meetings F = Female Held during W = White Period under B = Black, Coloured or Indian Nationality Business Address Review Occupation Pieter van Hoven South African 1 Marignane Drive, Bonaero Park, 4 of 4 Independent Non-executive Age : 70 (M) (W) Kempton Park 1619 Chairman
Martin Darryl Moritz South African 1 Marignane Drive, Bonaero Park, 4 of 4 Non-executive Joint Deputy Age: 69 (M) (W) Kempton Park, 1619 Chairman (BCom, LLB) Rodney Cyril Sacks South African 550 Monica Circle, Suite 201, 1 of 4 Independent Non-executive Age: 64 (M) (W) Corona, CA 92880, U.S.A Director HDip Law, HDip Tax Dr Peter Johannes Welgemoed South African 1 Marignane Drive, Bonaero Park, 3 of 4 Independent Non-executive Age: 71 (M) (W) Kempton Park, 1619 Director BCom (Hons), MCom, DCom Jacob Meyer Kahn South African Retired Chairman of SABMiller Plc, 2 of 4 Independent Non-executive Age: 75 (M) (W) 4 East Road, Morningside, 2057 Director BA (Law); MBA (UP); DCom (hc); SOE Martin Nicolaas Louw South African 1 Marignane Drive, Bonaero Park, 4 of 4 Director Operations Age: 59 (M) (W) Kempton Park, 1619 BMil Erik Rudolf Venter South African 1 Marignane Drive, Bonaero Park, 4 of 4 Chief Executive Officer Age: 44 (M) (W) Kempton Park, 1619 BCom, CA(SA) Khutso Ignatius Mampeule South African C/o Lefa Group Holdings (Pty) Ltd, 4 of 4 Independent Non-executive Age: 49 (M) (B) Mulberry Hill Office Park, Director BA, MSc, MBA Broadacres Ave, Dainfern, 2191 Ronald Sibongiseni Ntuli South African Thelo Group,(Pty) Ltd, Ground 4 of 4 Non-executive Joint Deputy Age: 44 (M) (B) Floor, Block 9, St.Andrews Inanda Chairman LLB (Edinburgh University) Greens Business Park, 54 Wierda Road West, Wierda Valley, 2196 Wrenelle Doreen Stander South African 272 Kent Avenue, Randburg, 2194 3 of 4 Independent Non-executive Age: 48 (F) (B) Director BA (Hons), MBA Atul Kumar Gupta1 South African 89 Gazelle Avenue, Corporate Park 0 of 1 Independent Non-executive Age: 46 (M) (B) South, Old Pretoria Main Road, Director BSc Midrand, 1682 Ranil Yasas Sri-Chandana2 South African 1 Marignane Drive, Bonaero Park, 2 of 2 Finance Director Age: 41 (M) (B) Kempton Park, 1619 BCompt (Hons), MCom, CA(SA), CFA, HDip Company Law
61 Report of the Directors (continued)
Name, Age, Qualification Attendance – Gender and Race four (4) Board M = Male Meetings F = Female Held during W = White Period under B = Black, Coloured or Indian Nationality Business Address Review Occupation Gavin James Halliday British British Airways Plc, 4 of 4 Independent Non-executive Age: 50 (M) (W) Waterside (HAA2), Harmondsworth, Director BA (Hons) Economics, Middlesex UB7 OGB, UK MBA (Lancaster University) Hubert Rene Brody3 South African 79 Boeing Road East, Bedfordview, 2 of 2 Independent Non-executive Age: 50 (M) (W) Gauteng, 2007 Director BAcc (Hons) Kirsten Emily King4 South African 1 Marignane Drive, Bonaero Park, 0 of 0 Financial Director Age: 36 (F) (W) Kempton Park, 1619 BCom (Hons) Accounting (CTA Equivalent), CA(SA) Derek Henry Borer South African 1 Marignane Drive, Bonaero Park, 4 of 4 Alternate Director to Age: 52 (M) (W) Kempton Park, 1619 Martin Nicolaas Louw and BCom, LLB Rodney Cyril Sacks, and Group Company Secretary
Notes 1 Atul Kumar Gupta resigned as an independent Non-executive Director of the Board on 12 November 2013. 2 Ranil Yasas Sri-Chandana, who emigrated to Australia, resigned as the Group’s Financial Director on 15 January 2014. 3 Hubert Rene Brody was appointed as an independent Non-executive Director on 1 January 2014. 4 Kirsten Emily King was appointed as Financial Director on 9 June 2014.
Share Incentive Scheme Executive Directors participate in a Share Incentive Scheme with no allocations made or options exercised during the financial year.
No share options were issued to employees through the Share Incentive Scheme during the year and 4,992,531 options remained available for issue at year-end. There were share options exercised by employees prior to year-end, with the transfers effected post year-end.
62 Integrated Annual Report 2014
Directors’ Remuneration 2014 Share- For based Services Related Group Payments as Committee Performance- Life and as per Total Directors Work Package1 related2 Pension Disability Medical IFRS 2014 Name R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Executives Mr ER Venter - - 2,525 3,500 342 67 38 ,- 6,472 Mr MN Louw - - 1,858 1,872 235 46 35 - 4,046 Mr RY Sri Chandana - - 988 - 90 17 20 - 1,115 Mr DH Borer - - 1,430 1,423 174 34 38 - 3,099 Ms KE King - - 50 158 7 3 3 - 221 Sub-total - - 6,851 6,953 848 167 134 - 14,953
Non-executives Mr MD Moritz 350 59 ------409 Mr RS Ntuli 350 ------350 Dr PJ Welgemoed 150 65 ------215 Mr JM Kahn 150 20 ------170 Mr KI Mampeule 150 72 ------222 Mr P van Hoven 1,200 39 ------1,239 Ms WD Stander ------Mr HR Brody 75 ------75 Sub-total 2,425 255 ------2,680 Share-based payment ------17,416 17,416 Total 2,425 255 6,851 6,953 848 167 134 17,416 35,049
Notes: 1 ‘Package’ includes the following regular payments made in respect of the financial year while actively employed: cash salary, S&T allowances and vehicle allowances. 2 ‘Performance related’ refers to the incentive rewards in respect of the financial yearended 30 June 2014. 3 Remuneration receivable by the Directors will not vary as a result of any proposed issue for cash or repurchase of shares.
Further details regarding the Company’s remuneration policies are set out in the Remuneration Report on pages 55 to 57 of this Integrated Annual Report.
63 Report of the Directors (continued)
Directors’ Remuneration 2013 Share- For based Services Related Group Payments as Committee Performance- Life and as per Total Directors Work Package1 related2 Pension Disability Medical IFRS 2013 Name R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Executives Mr ER Venter - - 2,381 3,000 307 60 35 - 5,783 Mr MN Louw - - 1,717 1,693 215 42 32 - 3,699 Mr RY Sri Chandana - - 1,330 1,341 142 28 31 - 2,872 Mr DH Borer - - 1,314 1,332 159 31 37 - 2,873 Sub-total - - 6,742 7,366 823 161 135 - 15,227
Non-executives Mr MD Moritz 250 45 ------295 Mr RS Ntuli 250 ------250 Dr PJ Welgemoed 120 70 ------190 Mr JM Kahn 120 10 ------130 Mr KI Mampeule 120 45 ------165 Mr P van Hoven 1,000 60 ------1,060 Ms WD Stander 120 30 ------150 Sub-total 1,980 260 ------2,240 Share-based payment ------4,250 4,250 Total 1,980 260 6,742 7,366 823 161 135 4,250 21,717
Notes: 1 ‘Package’ includes the following regular payments made in respect of the financial year while actively employed: Cash salary, S&T allowances and vehicle allowances. 2 ‘Performance related’ refers to the incentive rewards in respect of the financial yearended 30 June 2012. 3 Remuneration receivable by the Directors will not vary as a result of any proposed issue for cash or repurchase of shares.
64 Integrated Annual Report 2014
Statement of Responsibility by the Board of Directors
The Directors are responsible for the preparation, integrity and fair presentation of the Annual Financial Statements and other financial information included in this report.
The Annual Financial Statements, presented on pages 68 to 108 have been prepared in accordance with International Financial Reports Standards (IFRS) and the requirements of the Companies Act (Act No. 71 of 2008), and include amounts based on judgements and estimates made by Management.
The going-concern basis has been adopted in preparing the Annual Financial Statements. The Directors have no reason to believe that the Company or the Group will not be going concerns in the foreseeable future, based on forecasts and available cash resources. The Annual Financial Statements support the viability of the Company and the Group.
The Annual Financial Statements have been audited by the independent accounting firm, Grant Thornton (Jhb) Inc., which was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and Committees of the Board. The Directors believe that all representations made to the independent auditors during the audit were valid and appropriate.
The Annual Financial Statements, which appear on pages 68 to 108, were approved by the Board of Directors on 8 September 2014 and signed on its behalf.
Mr ER Venter Mr P van Hoven CEO Chairman
8 September 2014 8 September 2014
65 Certificate of Company Secretary
In terms of section 88(2)(e) of the Companies Act (Act No. 71 of 2008), as amended (“the Act”), I certify that the Company has lodged all returns and notices as required by the Act and that all such returns are true, correct and up to date.
Mr DH Borer Company Secretary
8 September 2014
66 Integrated Annual Report 2014
Independent Auditor’s Report
We have audited the consolidated and separate financial statements of Opinion Comair Limited set out on pages 68 to 108, which comprise the statements In our opinion, the consolidated and separate financial statements present of financial position as at 30 June 2014, and the statements of comprehensive fairly, in all material respects, the consolidated and separate financial income, statements of changes in equity and statements of cash flows for position of Comair Limited as at 30 June 2014, and its consolidated and the year then ended, and the notes, comprising a summary of significant separate financial performance and consolidated and separate cash flows accounting policies and other explanatory information. for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act of South Africa. Directors’ Responsibility for the Financial Statements The company’s directors are responsible for the preparation and fair Other Reports Required by the Companies Act presentation of these consolidated and separate financial statements As part of our audit of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the for the year ended 30 June 2014, we have read the Directors’ Report, Audit requirements of the Companies Act of South Africa and for such internal Committee’s Report and Company Secretary’s Certificate for the purpose control as the directors determine is necessary to enable the preparation of of identifying whether there are material inconsistencies between these consolidated and separate financial statements that are free from material reports and the audited consolidated and separate financial statements. misstatements, whether due to fraud or error. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies Auditor’s Responsibility between these reports and the audited consolidated and separate financial statements. However, we have not audited these reports and accordingly Our responsibility is to express an opinion on these consolidated and do not express an opinion on these reports. separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement.
Grant Thornton (Jhb) Inc. An audit involves performing procedures to obtain audit evidence about Registration No.: 1994/001166/21 the amounts and disclosures in the financial statements. The procedures Chartered Accountants (SA) selected depend on the auditor’s judgement, including the assessment of Registered Auditors the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers B Frey internal control relevant to the entity’s preparation and fair presentation Director of the financial statements in order to design audit procedures that are Chartered Accountant (SA) appropriate in the circumstances, but not for the purpose of expressing Registered Auditor an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used 8 September 2014 and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 42 Wierda Road West Wierda Valley We believe that the audit evidence we have obtained is sufficient and 2196 appropriate to provide a basis for our audit opinion.
67 Statements of Financial Position as at 30 June 2014
Group Company
2014 2013 2014 2013
Notes R’000 R’000 R’000 R’000
Assets Non-current assets 2,586,419 2,361,275 2,550,595 2,334,480 Property, plant and equipment 1 2,545,033 2,314,082 2,493,813 2,262,467 Intangible assets 2 31,106 41,475 31,106 41,475 Loan to share incentive trust 3 - - 3,814 5,337 Investments in and loans to subsidiaries 4 - - 21,862 25,201 Investments in and loans to associates 5 6,612 2,050 - - Goodwill 6 3,668 3,668 - -
Current assets 1,436,929 1,244,581 1,441,986 1,242,770 Inventory 7 7,608 7,086 7,608 7,086 Trade and other receivables 8 523,226 420,656 508,056 399,133 Investments in and loans to subsidiaries 4 - - 31,353 31,513 Investments in and loans to associates 5 7,852 7,852 7,852 7,852 Taxation 30,540 30,942 28,999 30,558 Cash and cash equivalents 9 867,703 778,045 858,118 766,628
4,023,348 3,605,856 3,992,581 3,577,250
Equity and Liabilities Capital and reserves 1,067,970 1,021,200 1,057,595 1,014,103 Share capital 10 5,094 5,578 5,144 5,633 Share premium - 123,631 - 123,742 Non-distributable reserves 27,424 23,996 27,424 23,996 Accumulated profits 1,035,452 867,995 1,025,027 860,732
Non-current liabilities 1,372,427 1,273,713 1,373,964 1,274,695 Interest-bearing liabilities 11 1,183,072 1,133,767 1,183,072 1,133,767 Deferred taxation 12 167,689 135,696 169,226 136,678 Share-based payments 13 21,666 4,250 21,666 4,250
Current liabilities 1,582,951 1,310,943 1,561,022 1,288,452 Trade and other payables 13 1,346,562 1,058,510 1,324,633 1,036,019 Provisions 14 99,719 116,212 99,719 116,212 Interest-bearing liabilities 11 136,670 136,221 136,670 136,221
4,023,348 3,605,856 3,992,581 3,577,250
Net asset value per share (cents) 245.3 211.1
68 Integrated Annual Report 2014 Statements of Comprehensive Income for the year ended 30 June 2014
Group Company
2014 2013 2014 2013
Notes R’000 R’000 R’000 R’000
Revenue 16 6,282,219 5,386,581 6,224,285 5,366,240 Operating expenses (5,577,457) (4,765,356) (5,517,795) (4,742,297)
Operating profit before depreciation, impairment and profit on sale of assets 704,762 621,225 706,490 623,943 Depreciation (290,747) (241,582) (290,140) (239,709) Reversal of impairment (impairment) 5.2 & 17 2,235 (6,817) - (17,559) Profit on sale of assets 524 984 524 984
Profit from operations 17 416,774 373,810 416,874 367,659 Interest income 32,149 20,217 31,515 19,856 Interest expense 18 (77,340) (61,641) (77,317) (61,445) Share of profit (loss) of associates 5 2,327 (1,725) - -
Profit before taxation 373,910 330,661 371,072 326,070 Taxation 19 (109,059) (103,135) (108,864) (101,066)
Total comprehensive income for the year attributable to equity holders of the parent 264,851 227,526 262,208 225,004
Earnings per share (cents) 20 58.4 47.0 Diluted earnings per share (cents) 20 56.1 47.0
69 Statements of Changes in Equity for the year ended 30 June 2014
Share-based Share Share Payment Accumulated Capital Premium Reserve Profit Total
R’000 R’000 R’000 R’000 R’000
Group Balance at 1 July 2012 5,578 123,631 20,568 664,684 814,461 BEE share-based payments - - 3,428 - 3,428 Total comprehensive income for the year - - - 227,526 227,526 Dividend paid - - - (24,215) (24,215) Movement for the year - - 3,428 203,311 206,739 Balance at 30 June 2013 5,578 123,631 23,996 867,995 1,021,200 BEE share-based payments - - 3,428 - 3,428 Total comprehensive income for the year - - - 264,851 264,851 Dividend paid - - - (70,295) (70,295) Repurchase of shares (489) (123,631) - (27,093) (151,213) Shares sold by Share Trust 5 - - (6) (1) Movement for the year (484) (123,631) 3,428 167,457 46,770 Balance at 30 June 2014 5,094 - 27,424 1,035,452 1,067,970
Company Balance at 1 July 2012 5,633 123,742 20,568 660,187 810,130 BEE share-based payments - - 3,428 - 3,428 Total comprehensive income for the year - - - 225,004 225,004 Dividend paid - - - (24,459) (24,459) Movement for the year - - 3,428 200,545 203,973 Balance at 30 June 2013 5,633 123,742 23,996 860,732 1,014,103 BEE share-based payments - - 3,428 - 3,428 Total comprehensive income for the year - - - 262,208 262,208 Dividend paid - - - (70,931) (70,931) Repurchase of shares (489) (123,742) - (26,982) (151,213) Movement for the year (489) (123,742) 3,428 164,295 43,492 Balance at 30 June 2014 5,144 - 27,424 1,025,027 1,057,595
70 Integrated Annual Report 2014 Statements of Cash Flow for the year ended 30 June 2014
Group Company
2014 2013 2014 2013
Notes R’000 R’000 R’000 R’000
Cash generated from operating activities 966,483 830,694 963,715 826,189 Cash receipts from customers 6,281,836 5,395,124 6,217,549 5,377,551 Cash paid to suppliers (5,193,498) (4,440,476) (5,133,275) (4,430,503) Cash generated by operations 21 1,088,338 954,648 1,084,274 947,048 Interest paid 18 (77,340) (61,641) (77,317) (61,445) Interest received 32,149 20,217 31,515 19,856 Taxation paid 22 (76,664) (82,530) (74,757) (79,270)
Cash utilised in investing activities (610,842) (104,441) (605,606) (105,242) Additions to property, plant and equipment (611,366) (105,096) (611,152) (105,151) Additions to intangible assets - (329) - (329) Proceeds on disposal of property, plant and equipment 524 984 524 984 Decrease in loan to share incentive trust - - 1,523 242 Decrease (increase) in subsidiaries loans 4 - - 3,499 (988)
Cash utilised in financing activities (265,983) (194,303) (266,619) (194,547) Repurchase of share capital (151,214) - (151,214) - Dividend paid (70,295) (24,215) (70,931) (24,459) Raising of interest bearing liabilities 174,675 - 174,675 - Repayment of interest-bearing liabilities (219,149) (170,088) (219,149) (170,088)
Net increase in cash and cash equivalents 89,658 531,950 91,490 526,400 Cash and cash equivalents at the beginning of the year 778,045 246,095 766,628 240,228 Cash and cash equivalents at the end of the year 867,703 778,045 858,118 766,628
71 Segmental Report for the year ended 30 June 2014
Airline Non-airline Total
R’000 R’000 R’000
30 June 2014 Revenue 6,109,143 173,076 6,282,219
Operating profit before depreciation, impairment and profit on sale of assets 681,552 23,210 704,762 Profit on sale of assets 524 - 524 Reversal of impairment 2,235 - 2,235 Depreciation (285,734) (5,013) (290,747) Profit from operations 398,577 18,197 416,774
Segmental assets and liabilities Segmental assets 3,875,108 148,240 4,023,348 Segmental interest-bearing liabilities (1,284,833) (34,909) (1,319,742) Other segmental liabilities (1,540,481) (95,155) (1,635,636) Segmental net asset value 1,049,794 18,176 1,067,970 Segmental capital additions (excluding borrowing costs capitalised) during the year 510,381 668 511,049
30 June 2013 Revenue 5,232,260 154,321 5,386,581
Operating profit before depreciation, impairment and profit on sale of assets 596,907 24,318 621,225 Profit on sale of assets 984 - 984 Impairment (6,817) - (6,817) Depreciation (236,342) (5,240) (241,582) Profit from operations 354,732 19,078 373,810
Segmental assets and liabilities Segmental assets 3,421,093 184,763 3,605,856 Segmental interest-bearing liabilities (1,226,379) (43,609) (1,269,988) Other segmental liabilities (1,251,316) (63,352) (1,314,668) Segmental net asset value 943,398 77,802 1,021,200 Segmental capital additions (excluding borrowing costs capitalised) during the year 1,093,702 432 1,094,134
Comair predominately operates within South Africa and as a result no Geographic Segmental Report is presented. Revenue earned from flights, other than in South Africa, is not considered to be significant and is generated from assets in control of the South African operation.
Inter-segmental revenue is not material and has therefore not been presented.
72 Integrated Annual Report 2014
Accounting Policies
Principal Accounting Policies and is of the view that the adoption of these standards and interpretations has no material impact on the financial statements of the Group: The Annual Financial Statements are presented in South African Rand as it is the currency of the economic environment in which the Group • IFRS 11 ‘Joint Arrangements’ (IFRS 11) operates. • IFRS 13 ‘Fair Value Measurement’ (IFRS 13) • Consequential amendments to IAS 27 ‘Separate Financial Statements’ The Annual Financial Statements are prepared in accordance with (IAS 27) and IAS 28 ‘Investments in Associates and Joint Ventures’ International Financial Reporting Standards (IFRS) as well as the SAICA (IAS 28) Financial Reporting Guides as issued by the Accounting Practices • Amendments to IAS 19 ‘Employee Benefits’ (IAS 19) Committee in terms of the Listings Requirements of the JSE Limited and the Companies Act of South Africa 2008. The Annual Financial A full list of standards that will become effective in the next financial year Statements have been prepared on the historical cost basis, except are disclosed in Note 28. for the measurement of certain financial instruments at fair value, and incorporate the principal accounting policies and measurement bases listed below. Basis of consolidation The Group financial statements consolidate those of the parent company and Except for the adoption of the new and revised accounting standards all of its subsidiaries as of 30 June 2014. The parent controls a subsidiary the principal accounting policies of the Group are consistent with those if it is exposed, or has rights, to variable returns from its involvement with applied in the audited consolidated Financial Statements for the year the subsidiary and has the ability to affect those returns through its power ended 30 June 2013. over the subsidiary. All subsidiaries have a reporting date of 30 June.
Adoption of Standards and Interpretations Effective All transactions and balances between Group companies are eliminated in 2014 on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group The following new standards were adopted during the finacial year under asset sales are reversed on consolidation, the underlying asset is also review, however none had significant financial impacts for the Group: tested for impairment from a Group perspective. Amounts reported in the IFRS 10 ‘Consolidated Financial Statements’ (IFRS 10) financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. IFRS 10 supersedes IAS 27 ‘Consolidated and Separate Financial Profit or loss and other comprehensive income of subsidiaries acquired Statements’ (IAS 27) and SIC 12 ‘Consolidation-Special Purpose Entities’. or disposed of during the year are recognised from the effective date of IFRS 10 revises the definition of control and provides extensive new acquisition, or up to the effective date of disposal, as applicable. guidance on its application. These new requirements have the potential to affect which of the Group’s investees are considered to be subsidiaries Non-controlling interests, presented as part of equity, represent the and therefore to change the scope of consolidation. The requirements portion of a IFRS 10.B94 subsidiary’s profit or loss and net assets that on consolidation procedures, accounting for changes in non-controlling is not held by the Group. The Group attributes total comprehensive interests and accounting for loss of control of a subsidiary are unchanged. income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. Management has reviewed its control assessments in accordance with IFRS 10 and has concluded that there is no effect on the classification (as Business Combinations subsidiaries or otherwise) of any of the Group’s investees held during the The Group applies the acquisition method in accounting for business period or comparative periods covered by these financial statements. combinations. The consideration transferred by the Group to obtain
IFRS 12 ‘Disclosure of Interests in Other Entities’ (IFRS 12) control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests IFRS 12 integrates and makes consistent the disclosure requirements issued by the Group, which includes the fair value of any asset or liability for various types of investments, including unconsolidated structured arising from a contingent consideration arrangement. Acquisition costs entities. It introduces new disclosure requirements about the risks to are expensed as incurred. which an entity is exposed from its involvement with structured entities.
The Group recognises identifiable assets acquired and liabilities assumed Management has reviewed the impact of the following new and revised in a business combination regardless of whether they have been previously standards effective for annual periods beginning on or after 1 January 2013 recognised in the acquiree’s financial statements prior to the acquisition.
73 Accounting Policies (continued)
Assets acquired and liabilities assumed are generally measured at their comprehensive income of the associate, adjusted where necessary to acquisition-date fair values. ensure consistency with the accounting policies of the Group.
Goodwill is stated after separate recognition of identifiable intangible Unrealised gains and losses on transactions between the Group and its assets. It is calculated as the excess of the sum of: associates are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset is a) fair value of consideration transferred; also tested for impairment. b) the recognised amount of any non-controlling interest in the acquiree; and The Group’s share of movements in the associate’s other comprehensive c) acquisition-date fair value of any existing equity interest in the acquiree, income is recognised in other comprehensive income. The Group’s share over the acquisition-date fair values of identifiable net assets. of the aggregate loss in any associate is limited to its net investment in the associate, unless the Group has incurred an obligation or made payments If the fair values of identifiable net assets exceed the sum calculated on the associate’s behalf. The Group’s share of inter-company gains is above, the excess amount (i.e. gain on a bargain purchase) is recognised eliminated on consolidation, whilst the Group’s share of inter-company in profit or loss immediately. losses is only eliminated if the transaction does not provide evidence of impairment of the asset transferred. Investments in associates are disclosed Subsidiaries as the initial investment plus the aggregate of loans made to the associate Subsidiaries are companies and entities of which the Company has the plus the Group’s aggregate share of post-acquisition equity. Investments ability to control the financial and operating activities so as to obtain in associates are accounted for at cost less any impairment losses in the benefit from their activities. Investment in subsidiaries are carried at Company’s stand-alone Financial Statements. cost less any impairment losses in the Company’s stand-alone Financial Statements. Property, Plant and Equipment Freehold property, aircraft and related equipment, vehicles, furniture, The cost of an investment in a subsidiary is the aggregate of: computers and flight simulator equipment are depreciated systematically on the straight-line basis, which is estimated to depreciate the assets to • The fair value, at the date of exchange, of assets given, liabilities their anticipated residual values through a component approach over their incurred or assumed, and equity instruments issued by the Company. planned useful lives. Land is not depreciated.
An adjustment to the cost of a business combination contingent on future Property, plant and equipment are stated at cost less accumulated events is included in the profit or loss of the combination if the adjustment depreciation and impairment. is probable and can be measured reliably.
Cost includes expenditure that is directly attributable to the acquisition of The cost includes an estimate of contingent consideration payable at fair the asset. Subsequent costs are included in the asset’s carrying value or value at acquisition date. recognised as a separate asset as appropriate, only when it is probable that future economic benefits associated with the specific asset will flow to the The Group Share Incentive Trust is included in the consolidated Financial Group and costs can be measured reliably. The carrying values are assessed Statements as a subsidiary. at each reporting date and only written down if there are impairments in value. The useful life, depreciation method and residual values are assessed Investments in Associates at the end of each reporting period and revised if necessary. Associates are those entities over which the Group is able to exert significant influence but which are not subsidiaries. Depreciation Rates for Property Plant and Equipment Property and buildings 2% Investments in associates are accounted for using the equity method. Motor vehicles 20% Any goodwill or fair value adjustment attributable to the Group’s share in Furniture and equipment 7% the associate is not recognised separately and is included in the amount Computer equipment 20% to 50% recognised as investment. Second-hand flight simulator equipment 20% New simulator equipment 7% The carrying amount of the investment in associates is increased or Leasehold improvements Life of the lease agreement decreased to recognise the Group’s share of the profit or loss and other
74 Integrated Annual Report 2014
Aircraft For all other intangible assets amortisation is provided on a straight-line basis over their useful life. Aircraft are initially recognised at spot rate at date of purchase. The carrying values of aircraft are assessed annually for impairment. Aircraft The amortisation period and the amortisation method for intangible assets modifications are capitalised only to the extent that they materially improve are reviewed at every period end. the value of the aircraft from which further future economic benefits are expected to flow. Maintenance and repairs which neither materially or Reassessing the useful life of an intangible asset with a finite useful life appreciably prolong their useful lives are charged against income. C and after it was classified as indefinite is an indicator that the asset may be D Checks are capitalised and expensed over their useful lives. The gain impaired. As a result, the asset is tested for impairment and the remaining or loss on disposal of an asset is determined as the difference between carrying amount is amortised over its useful life. the sales proceeds and the carrying amount of the asset and recognised in the Statements of Comprehensive Income. The aircraft residual values Internally generated brands, mastheads, publishing titles, customer lists are between 0 and 10%. and items similar in substance are not recognised as intangible assets. Depreciation Rates for Aircraft Amortisation is provided to write down the intangible assets, on a straight- Aircraft and related equipment 4 to 20% line basis, to their residual values as follows: C Checks 18 months D Checks 72 months • Internally generated intangible assets: research and development expenditure. Intangible Assets An intangible asset is recognised when: Costs associated with developing and maintaining computer software programs are recognised as expenses when incurred. Costs that are • It is probable that the expected future economic benefits that are directly associated with the development of identifiable and unique attributable to the asset will flow to the entity; and software products controlled by the Group and that will probably generate • The cost of the asset can be measured reliably. economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs include the software development employee Intangible assets are initially recognised at cost. costs and an appropriate portion of relevant overheads. Amortisation is charged on a straight-line basis over their estimated useful lives of An intangible asset arising from development (or from the development five years. Software is carried at cost less accumulated amortisation phase of an internal project) is recognised when: and impairment.
• It is technically feasible to complete the asset so that it will be available Pre-delivery Payments for use or sale; Aircraft pre-delivery payments and security deposits are capitalised to • There is an intention to complete and use or sell it; property, plant and equipment once all conditions precedent cruical to • There is an ability to use or sell it; the legal agreements are met and construction of the aircraft has begun. • It will generate probable future economic benefits; Prior to being capitalised to property, plant and equipment, aircraft pre- • There are available technical, financial and other resources to complete delivery payments and security deposits are accounted for as deposits the development and to use or sell the asset; and in other receivables. Aircraft pre-delivery payments and security deposits • The expenditure attributable to the asset during its development can are not depreciated. Upon delivery of the relevant aircraft, the pre-delivery be measured reliably. payments are transferred to the cost of the aircraft.
Intangible assets are carried at cost, being fair value at the date of revaluation less any subsequent accumulated amortisation and any subsequent Goodwill accumulated impairment losses. Goodwill represents the excess of the cost of an acquisition of a business over the fair value of the Group’s share of the net identifiable assets of An intangible asset is regarded as having an indefinite useful life when, the acquired subsidiary at the date of acquisition. Goodwill is tested based on all relevant factors, there is no foreseeable limit to the period over at reporting date for impairment and carried at cost less accumulated which the asset is expected to generate net cash inflows. Amortisation is impairment losses. Impairment losses on goodwill are not reversed. Gains not provided for these intangible assets, but they are tested for impairment and losses on the disposal of an entity include the carrying amount of annually and whenever there is an indication that the asset may be impaired. goodwill relating to the entity sold.
75 Accounting Policies (continued)
Finance Leases and Instalment Sale Agreements – Derecognition Lessee Financial assets (or a portion thereof) are derecognised when the Group Leases, whereby the lessor provides finance to the Group and where the realises the rights to the benefits specified in the contract, the rights expire, Group assumes substantially all the benefits and risks of ownership, are or the Group surrenders or otherwise loses control of the contractual rights classified as finance leases. that comprise the financial asset. In derecognition, the difference between the carrying amount of the financial asset and proceeds receivable and The amount capitalised at inception of the lease is the lower of the fair any prior adjustment to reflect fair value that had been reported in other value of the leased asset and the present value of the minimum lease comprehensive income are included in profit or loss. Financial liabilities (or payments. The discount rate used in calculating the present value of a portion thereof) are derecognised when the obligation specified in the the minimum lease payments is the interest rate implicit in the lease or contract is discharged, cancelled or expires. On derecognition, the difference the Group’s incremental borrowing rate if rate implicit in the lease is not between the carrying amount of the financial liability, including related practicable to determine. The capital element of future obligations under unamortised costs and the amount paid for it, are included in profit or loss. leases is included as a liability in the Statement of Financial Position. Each lease payment is allocated between the liability and finance charges so Loans to (from) Group Companies as to achieve a constant rate on the finance balance outstanding. The These include loans to subsidiaries, associates, share incentive trust interest element of the instalments is charged against income over the (accounted for as a subsidiary) and joint ventures and are recognised lease period. initially at fair value plus direct transaction costs. Subsequently, these loans are measured at amortised cost using the effective interest rate method, Operating Leases – Lessee less any impairment loss recognised to reflect irrecoverable amounts. Leases of assets to the Group under which all risks and rewards of ownership On loans receivable an impairment loss is recognised in profit or loss are effectively retained by the lessor, are classified as operating leases. when there is objective evidence that it is impaired. The impairment is Payments made under operating leases are charged against income on measured as the difference between the instrument’s carrying amount a straight-line basis over the period of the lease. A straight-line asset/ and the present value of estimated future cash flows discounted at the liability is raised for the difference between the leased payment and the effective interest rate computed at initial recognition. Impairment losses lease expense. are reversed in subsequent periods when an increase in the instrument’s recoverable amount can be related objectively to an event occurring after Financial Instruments the impairment was recognised, subject to the restriction that the carrying amount of the instrument at the date the impairment is reversed shall not Initial Recognition exceed what the amortised cost would have been had the impairment not been recognised. Loans to (from) Group companies are classified as The Group classifies financial instruments, or their component parts, on initial loans and receivables (financial liabilities at amortised cost). recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Trade and Other Receivables
Financial assets and financial liabilities are recognised on the Group’s Trade receivables are measured at initial recognition at fair value plus Statement of Financial Position when the Group becomes party to the transaction costs, and are subsequently measured at amortised cost contractual provisions of the instrument. using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when Fair Value Determination there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying The fair values of quoted investments are based on current bid prices. If amount and the present value of estimated future cash flows discounted the market for a financial asset is not active (and for unlisted securities), at the effective interest rate computed at initial recognition. the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other The carrying amount of the asset is reduced through the use of an instruments that are substantially the same, discounted cash flow analyses, allowance account, and the amount of the loss is recognised in the and option pricing models making maximum use of market inputs and Statement of Comprehensive Income within operating expenses. When relying as little as possible on entity-specific inputs. a trade receivable is uncollectable, it is written off against the allowance
76 Integrated Annual Report 2014
account for trade receivables. Subsequent recoveries of amounts previously Hedge Accounting written off are credited against operating expenses in the Statement of The Group designates certain derivatives as either: Comprehensive Income. • Hedges of the fair value of recognised assets or liabilities or a firm Trade and other receivables are classified as loans and receivables. commitment (fair value hedge); • Hedges of a particular risk associated with a recognised asset or Trade and Other Payables liability or a highly probable forecast transaction (cash flow hedge); or Trade payables are initially measured at fair value less transaction costs, • Hedges of a net investment in a foreign operation (net investment and are subsequently measured at amortised cost, using the effective hedge). interest rate method. The Group documents, at the inception of the transaction, the relationship Cash and Cash Equivalents between hedging instruments and hedged items, as well as its risk Cash and cash equivalents comprise cash on hand and demand deposits, management objectives and strategy for undertaking various hedging and other short-term, highly liquid investments that are readily convertible transactions. The Group also documents its assessment, both at hedge to a known amount of cash, and are subject to an insignificant risk of inception and on an ongoing basis, of whether the derivatives that are changes in value. These are initially recognised at fair value including used in hedging transactions are highly effective in offsetting changes in transaction costs and subsequently measured at amortised cost using fair values or cash flows of hedged items. the effective interest rate method. These instruments are classified as loans and receivables. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more Interest-bearing Liabilities than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Interest-bearing liabilities are initially measured at fair value less transaction cost, and are subsequently measured at amortised cost, which include Cash Flow Hedge all interest-bearing liabilities, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the The effective portion of changes in the fair value of derivatives that settlement or redemption of borrowings is recognised over the term of are designated and qualify as cash flow hedges is recognised in other the borrowings in accordance with the Group’s accounting policy for comprehensive income. The gain or loss relating to the ineffective portion borrowing costs. is recognised immediately in the Statement of Comprehensive Income within profit or loss. The dividends on these preference shares are recognised in the Statement of Comprehensive Income as an interest expense. The amount of gains/losses in other comprehensive income is reclassified to profit or loss in the period when the hedged item affects profit or loss. Other financial liabilities are measured initially at fair value less transaction cost and subsequently at amortised cost using the effective interest rate However, when the forecast transaction that is hedged results in the method. recognition of a non-financial asset (for example, inventory or fixed assets) the gains and losses previously deferred in the Statement of Comprehensive Derivatives Income are transferred from other comprehensive income and included in the initial measurement of the cost of the asset. The deferred amounts Derivative financial instruments, which are not designated as hedging are ultimately recognised in cost of goods sold in case of inventory or in instruments, consist of foreign exchange contracts and are initially depreciation in case of fixed assets. measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives embedded in other If a legally enforceable right exists to set off recognised amounts of financial financial instruments or other non-financial host contracts are treated as assets and liabilities and there is an intention to settle net, the relevant separate derivatives when their risks and characteristics are not closely financial assets and liabilities are offset. related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss. Where the impact of discounting is not considered to be material, financial Changes in the fair value of derivative financial instruments are recognised instruments carried at amortised costs are not discounted due to the fact in profit or loss as they arise. Derivatives are classified as financial assets that their carrying values approximate amortised cost. or financial liabilities at fair value through profit or loss.
77 Accounting Policies (continued)
Inventory Equity Settled Inventory is stated at the lower of cost and net realisable values. Cost is Convertible 'A' class shares and options were issued in terms of a Black determined on the first-in-first-out basis. Net realisable value is the estimated Economic Empowerment Deal. The fair value of the equity instrument is selling price in the ordinary course of business less the estimated cost measured at grant date using the Black-Scholes Model and recognised as of completion and the estimated cost necessary to make the sale. The an expense with corresponding increase in equity over the vesting period of cost of inventories comprises all cost of purchase, cost of conversion and the share-based payment. Management reassesses the number of options other costs incurred in bringing the inventories to their present location expected to ultimately vest based on non-market vesting conditions. The and condition. impact of the revision to the original estimates, if any, is recognised in the Statement of Comprehensive Income, with a corresponding adjustment to equity. Proceeds received net of any directly attributable transaction Share Capital costs are credited to share capital and share premium when the options An equity instrument is any contract that evidences a residual interest in are exercised. Subsequent to vesting, management no longer makes any the assets of an entity after deducting all of its liabilities. Ordinary shares adjustments to the cost of the share-based payments recognised. Options are classified as equity. If the Group re-acquires its own equity instruments, that expire or are forfeited, are removed from equity with a corresponding the consideration paid, including any directly attributable incremental costs adjustment to the Statement of Comprehensive Income. (net of income taxes) on those instruments is deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Consideration paid Provisions or received shall be recognised directly in equity. The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Where some or all of the Incremental costs directly attributable to the issue of new shares or options expenditure required to settle a provision is expected to be reimbursed are shown in equity as a deduction, net of tax, from the proceeds. by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as Share-based Payment Transactions a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision. Provisions are not recognised Cash Settled for future operating losses. Options are granted to certain employees in the Group. The fair value of the amount payable to the employee is recognised as an expense with a If an entity has a contract that is onerous, the present obligation under corresponding increase in liabilities. The fair value is initially measured at the contract shall be recognised and measured as a provision. The rate grant date using the Black-Scholes Model and expensed over the period applied to present value the expenditure is the pre-tax market related rate during which the employee becomes unconditionally entitled to payment. adjusted for the risks associated with the obligation. Management assesses the number of options that will ultimately vest based on non-market vesting conditions at each reporting period until Provisions were raised and management determined an estimate based vesting, but the assessment of the fair value of the option against the on the information available. Additional disclosure of these estimates of market performance of the share price, is done at each reporting period provisions are included in the provisions note. end up to and including settlement date. Revenue Recognition Share options that expire or are forfeited are reversed against the liability raised with an adjustment to profit or loss. The fair value of the instruments Revenue comprises all airline-related and non-airline revenue earned. granted is measured against market performance of the share price. The Revenue arising from the provision of transportation services to passengers liability is measured at each reporting date and at settlement date, with all is recognised on an accrual basis in the period in which the services movements in fair value being recognised in profit or loss. are rendered and the passenger has flown. Unflown ticket revenue is recognised as a liability until such time as the passenger has flown. Where options are issued that provide the holder the choice of settlement Revenue is measured at the fair value of consideration received and is (equity or cash) these are accounted for as a compound financial instrument. exclusive of VAT, discounts received and returns. First the fair value of the debt component is determined and then the difference between the value of the compound instrument and the fair Revenue from sale of goods is recognised when risks and rewards transfer value of the debt component is recognised as the equity component. and excludes value added tax.
78 Integrated Annual Report 2014
Non-airline revenue relates to services relating to the hiring of simulator tax assets is reviewed at each reporting date and reduced to the extent equipment, commission from airport lounges and the sale of holiday that it is no longer probable that sufficient taxable profit will be available packages. to allow all or part of the asset to be recovered.
International Loyalty Programme revenue is income received from BA Deferred tax assets and liabilities are measured at the tax rates expected Executive Club members using the Group’s services, and is recognised to apply to the period when the asset is realised or the liability is settled, on the accrual basis in profit or loss. based on the tax rates (and tax laws) enacted or substantively enacted by the reporting date. Interest is recognised on the accrual basis, in profit or loss, using the effective interest rate method. Dividends are recognised in profit or loss Borrowing Costs when the Group’s right to receive payment has been established. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time Taxation that is necessary to complete and prepare the asset for its intended use Current tax and deferred taxes are recognised as income or an expense or sale. Other borrowing costs are expensed in the period in which they and included in profit or loss for the period, except to the extent that the are incurred and reported in finance costs (see Note 18). tax arises from: Foreign Currency • A transaction or event which is recognised, in the same or a different period, directly in other comprehensive income; or Foreign currency transactions are recorded at the exchange rate ruling • A business combination. on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange ruling at the Current tax and deferred taxes are charged or credited directly to other reporting date. Profits or losses arising on translation of foreign currency comprehensive income if the tax relates to items that are credited or transactions are included in profit or loss. charged in the same or a different period, to other comprehensive income. Non-monetary assets and liabilities are translated at the prevailing rate Current tax is calculated at rates (tax laws) enacted or substantively at the date of acquisition. Exchange differences on non-monetary assets enacted at reporting period end in accordance with the South African classified as available for sale financial instruments are recognised as part Income Tax Act (Act No. 58 of 1962). of the fair value movement in other comprehensive income. All foreign exchange movements are recognised in profit or loss, unless they relate to non-monetary assets classified as available for sale financial instruments Deferred Taxation where that movement is then recognised in equity, or they form part of Deferred tax is the tax expected to be payable or recoverable on differences the borrowing costs capitalised to qualifying assets. between the carrying amount of assets and liabilities in the Financial Statements and the corresponding tax basis used in the computation Short-term Employee Benefits of taxable profit, and is accounted for using the comprehensive liability method. Deferred tax liabilities are recognised for all taxable temporary The cost of short-term employee benefits (those payable within 12 months differences and deferred tax assets are recognised to the extent that it after the service is rendered, such as paid vacation leave and bonuses), is probable that taxable profits will be available against which deductible are recognised in the period in which the service is rendered and are not temporary differences can be utilised. Such assets and liabilities are not discounted. The expected cost of compensated absences is recognised as recognised if the temporary differences arise from goodwill (or negative an expense as the employees render services that increase their entitlement goodwill) or from the initial recognition (other than in a business combination) or, in the case of non-accumulating absences, when the absence occurs. of other assets and liabilities in a transaction affecting neither the tax profit The expected cost of profit sharing and bonus payments is recognised or losses, nor the accounting profit or losses. as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in Retirement and Medical Funds joint ventures, except where the Group is able to control the reversal of Current contributions to the Group’s defined contribution retirement fund are the temporary differences and it is probable that the temporary difference based on current salary and are recognised when they fall due. The Group will not reverse in the foreseeable future. The carrying amount of deferred has no further payment obligations once the payments have been made.
79 Accounting Policies (continued)
Impairment A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately The Group assesses, at the end of each reporting period, whether there is in profit or loss. any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. Accounting Estimates and Judgements Irrespective of whether there is any indication of impairment, the Group also: Sources of Estimation Uncertainty • Tests goodwill acquired in a business combination for impairment In preparing the Annual Financial Statements, management is required to annually; and make estimates and assumptions that affect the amounts represented in • Tests intangible assets for impairment annually. the Annual Financial Statements and related disclosures. Use of available information and the application of judgement is inherent in the formation If there is any indication that an asset may be impaired, the recoverable of estimates. Actual results in the future could differ from these estimates amount is estimated for the individual asset. If it is not possible to estimate which may be material to the Annual Financial Statements. Significant the recoverable amount of the individual asset, the recoverable amount judgements include: of the cash-generating unit to which the asset belongs is determined.
Asset Lives and Residual Values The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If the recoverable Property, plant and equipment are depreciated over their useful lives taking amount of an asset is less than its carrying amount, the carrying amount into account residual values, where appropriate. The actual lives of the of the asset is reduced to its recoverable amount. That reduction is an assets and residual values are assessed at each reporting date and may impairment loss. vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product lifecycles and maintenance An impairment loss of assets carried at cost less any accumulated programmes are taken into account. Residual value assessments consider depreciation or amortisation is recognised immediately in profit or loss. issues such as future market conditions, the remaining life of the asset and projected disposal values. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units, or groups of cash-generating Impairment units, that are expected to benefit from the synergies of the combination. Future cash flows expected to be generated by the asset are projected, taking into account market conditions and the expected useful lives of An impairment loss is recognised for cash-generating units if the recoverable the assets. The present value of these cash flows, determined using an amount of the unit is less than the carrying amount of the unit. The appropriate discount rate, is compared to the current asset value and, if impairment loss is allocated to reduce the carrying amount of the assets lower, the assets are impaired to the present value. of the unit in the following order: Loans and other receivables • First, to reduce the carrying amount of any goodwill allocated to the The Group assesses its trade and other receivables for impairment at the cash-generating unit; and end of each reporting period. In determining whether an impairment loss • Then, to the other assets of the unit, pro rata on the basis of the should be recorded in profit or loss, the Group makes judgements as to carrying amount of each asset in the unit. whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset. The Group assesses, at each reporting date, whether there is any indication that an impairment loss recognised in prior periods for assets other than Fair value estimation goodwill may no longer exist or may have decreased. If any such indication The fair value of financial instruments that are not traded in an active exists, the recoverable amounts of those assets are estimated. market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market The increased carrying amount of an asset other than goodwill attributable conditions existing at the end of each reporting period. Quoted market to a reversal of an impairment loss does not exceed the carrying amount prices or dealer quotes for similar instruments are used for long-term debt. that would have been determined had no impairment loss been recognised Other techniques, such as estimated discounted cash flows, are used to for the asset in prior periods. determine fair value for the remaining financial instruments. The fair value
80 Integrated Annual Report 2014
of forward foreign exchange contracts is determined using quoted forward Management has applied a probability analysis to determine future taxable exchange rates at the end of the reporting period. income against which calculated tax losses will be utilised.
The carrying value less impairment provision of trade and other receivables Segmental Information is assumed to approximate their fair values as the instrument is short-term Operating segments are reported in a manner consistent with the internal in nature. The fair value of financial liabilities for disclosure purposes is reporting provided to the chief operating decision-maker (Financial Director). estimated by discounting the future contractual cash flows at the current The chief operating decision-maker, who is responsible for allocating market interest rate that is available to the Group for similar financial resources and assessing performance of the segments, has been identified instruments. as the Chief Executive Officer. Segments are presented in terms of IFRS.
Critical Judgements in Applying the Entity’s At year end, the Group was organised into two main operating segments: Accounting Policies 1. Airline; and Judgements made by management are continually evaluated and are 2. Non-airline, which comprises the travel business, property investments, based on historical experience and the expectation of future events that simulator business and Slow in the City. are believed to be reasonable under the circumstances.
Borrowing Costs Pre-delivery payment assets are regarded as qualifying assets for the purpose of the capitalisation of borrowing costs. Exchange differences arising from foreign currency borrowings, to the extent that they are regarded as an adjustment to interest costs, are capitalised as part of borrowing costs as these expenses are considered part of the cost of borrowing in foreign currency.
Taxation Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate taxation determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated taxation audit issues based on estimates of whether additional taxes will be due. Where the final taxation outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income taxation and deferred taxation provisions in the period in which such determination is made.
Recovery of Deferred Tax Assets The Group recognises the net future taxation benefit related to deferred income taxation assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income taxation assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing taxation laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred taxation assets recorded at the end of the reporting period could be impacted.
81 Notes to the Annual Financial Statements for the year ended 30 June 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
1. Property, Plant and Equipment
Property and buildings Cost 92,811 92,716 41,786 41,691 Accumulated depreciation (7,473) (6,724) (7,473) (6,724) Carrying value 85,338 85,992 34,313 34,967
Leasehold improvements Cost 63,266 52,930 63,266 52,930 Accumulated depreciation (33,961) (23,076) (33,961) (23,076) Carrying value 29,305 29,854 29,305 29,854
Aircraft and flight simulator equipment Cost 3,319,371 3,040,961 3,319,371 3,040,961 Accumulated impairment (30,559) (30,559) (30,559) (30,559) Accumulated depreciation (1,105,393) (855,473) (1,105,393) (855,473) Carrying value 2,183,419 2,154,929 2,183,419 2,154,929
Vehicles, furniture and equipment and computer equipment Cost 84,308 80,567 84,096 79,606 Accumulated depreciation (67,668) (61,828) (67,651) (61,457) Carrying value 16,640 18,739 16,445 18,149
Pre-delivery payments 230,331 24,568 230,331 24,568
Total property, plant and equipment and pre-delivery payments 2,545,033 2,314,082 2,493,813 2,262,467
Reconciliation of Carrying Value
Property and buildings Carrying value at the beginning of the year 85,992 101,528 34,967 48,960 Additions 95 73 95 73 Transfer to leasehold improvements - (13,756) - (13,756) Depreciation (749) (1,853) (749) (310) Carrying value at the end of the year 85,338 85,992 34,313 34,967
Leasehold improvements Carrying value at the beginning of the year 29,854 27,036 29,854 27,036 Additions 10,336 359 10,336 359 Transfer from property and buildings - 13,756 - 13,756 Depreciation (10,885) (11,297) (10,885) (11,297) Carrying value at the end of the year 29,305 29,854 29,305 29,854
82 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
Aircraft and flight simulator equipment Carrying value at the beginning of the year 2,154,929 856,595 2,154,929 856,595 Additions 290,359 1,091,944 290,359 1,091,944 Transfer from pre-delivery payments - 414,289 - 414,289 Depreciation (261,869) (207,899) (261,869) (207,899) Carrying value at the end of the year 2,183,419 2,154,929 2,183,419 2,154,929
Vehicles, furniture, equipment and computer equipment Carrying value at the beginning of the year 18,739 27,473 18,149 26,553 Additions 4,776 1,429 4,564 1,429 Depreciation (6,875) (10,163) (6,268) (9,833) Carrying value at the end of the year 16,640 18,739 16,445 18,149
Pre-delivery payments Carrying value at beginning of the year 24,568 419,877 24,568 419,877 Payments made 205,483 - 205,483 - Capitalised as part of aircraft - (414,289) - (414,289) Borrowing costs capitalised 280 18,980 280 18,980 Interest capitalised 1,490 3,438 1,490 3,438 Foreign exchange (gains) losses capitalised (1,210) 15,542 (1,210) 15,542
Carrying value at the end of year 230,331 24,568 230,331 24,568
Total property, plant and equipment 2,545,033 2,314,082 2,493,813 2,262,467
Property and buildings owned consist of Erf 1092 and 1096 Bonaero Park extension 2, Erf 931, Bonaero Park extension 1, Erf 700, Rhodesfield Township, and Erven 674, 684, 685, 687, 688, 689, 690, 695 and Erf 1040, Rhodesfield Township. Valuations of the properties are performed every three years, and based on this the estimated Directors’ value of these properties is approximately R129 million (2013: R129 million).
The net book value of property, plant and equipment held under instalment sale and finance lease agreements are disclosed in Note 11.
Pre-delivery payments are payments made to the Boeing Company for the remaining four (4) of eight (8) new Boeing 737-800 aircraft which arrived in South Africa from July 2012. The finance for the aircraft was partly through a rights issue during the 2010 financial year and a further loan through Investec Limited which is disclosed in Note 11. Future capital commitments relating to the Boeing 737-800s are disclosed in Note 27. Borrowing costs capitalised to the pre-delivery payments were incurred at a rate of 3.7% on a US Dollar-based facility concluded in 2012.
83 Notes to the Annual Financial Statements (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
2. Intangible Assets
Computer software Cost 51,844 51,844 51,844 51,844 Accumulated amortisation (20,738) (10,369) (20,738) (10,369) Carrying value 31,106 41,475 31,106 41,475
Reconciliation of Carrying Value
Computer software Carrying value at the beginning of the year 41,475 51,515 41,475 51,515 Additions - 329 - 329 Amortisation (10,369) (10,369) (10,369) (10,369) Carrying value at the end of the year 31,106 41,475 31,106 41,475
The intangible asset relates to the implementation of SABRE Airline Solutions, which was fully operational in the 2012 financial year. The remaining period of amortisation is three years.
3. Loan to Share Incentive Trust
This loan relates to the Comair Share Incentive Trust's acquisition of 21 million ordinary shares at 72 cents per share in June 1998. The term of the loan is unspecified and it bears no interest.
At year end the Trust held 4,992,531 shares representing 1.1% of shares in issue (prior year: 5,525,864 shares representing 1.1%) at a closing price of 448c (prior year: 265c). - - 3,814 5,337
4. Investments in and Loans to Subsidiaries
Non-current portion
4.1 Aconcagua 32 Investments (Proprietary) Limited 1 ordinary share of R1 at cost (100% shareholding) Investment at cost - - 16,732 16,732 Loan receivable - - 2,527 5,866
The company is the owner of Erf 700, Rhodesfield Township. This is the only asset in its books, valued at R22 million. There are no material liabilities in this company. The share in the company was acquired during May 2008. The loan is interest free and not repayable in the next 12 months.
84 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
4.2 Holiday Tours (Proprietary) Limited 1 million shares of 1 cent each at cost (100% shareholding)
The Group acquired 65% of the issued share capital in the 2011 financial year. In December 2011, the remaining 35% shareholding was acquired at a cost of R35,000. The company is a tour operating company offering holiday packages.
Investment at cost - - 2,593 2,593
4.3 Churchill Finance Services 23 Limited 2 shares of US$1 at cost (100% shareholding)
Comair Limited acquired 100% of the shares in Churchill Finance Services 23 Limited during February 2011 for R10,000.
The company is currently being liquidated.
Investment at cost - - 10 10
Total non-current portion - - 21,862 25,201
Current portion
4.4 Alooca Technologies (Proprietary) Limited 100 ordinary shares of R1 at cost (100% shareholding)
Loan receivable - - 27,517 28,212
The company acquired Erven 674, 684, 685, 687, 688, 689, 690, 695 and 1040 in Rhodesfield Township with funding from Comair Limited. The properties at cost are valued at R30.8 million (2013: R30.8 million).
The loan is unsecured, has no fixed repayment terms and is interest free.
4.5 Amber (Proprietary) Limited 1 ordinary share of R1 at cost (100% shareholding)
The company is currently being liquidated.
85 Notes to the Annual Financial Statements (continued)
4. Investments in and Loans to Subsidiaries (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
4.6 Kulula Air (Proprietary) Limited 100 ordinary shares of R1 at cost (100% shareholding)
This company operates a business lounge situated opposite the Gautrain Station in Sandton. The lounge commenced operations in August 2011.
Assets were transferred to the building during the prior year as leasehold improvements as reflected in Note 1.
Loan receivable - - 3,823 3,290
The loan is unsecured, has no fixed repayment terms and is interest free.
4.7 Comair Catering (Proprietary) Limited 100 ordinary shares of R1 at cost (100% shareholding)
This dormant company has a bank account which has been funded by Comair Limited.
Loan receivable - - 13 11
The loan is unsecured, has no fixed repayment terms and is interest free.
Total current portion - - 31,353 31,513
Total investment in subsidiaries - - 53,215 56,714
Maximum amount exposed to credit risk 33,880 37,368
5. Investment in and Loans to Associates
Unrealised gains and losses on transactions between the Group and its associates are eliminated to the extent of the Group’s interests in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment.
The following table lists the associates in the Group.
Ownership % Commuter Handling Services (Proprietary) Limited held by Comair Limited 40% 40% 40% 40% Imperial Air Cargo (Proprietary) Limited held by Comair Limited 30% 30% 30% 30% Protea Hotel ORT (Proprietary) Limited held by Aconcagua 32 (Proprietary) Limited 25% 25% 25% 25% Comair Mozambique Limitada held by Comair Limited 49% 49% 49% 49% Online World Travel 24 (Proprietary) Limited held by Comair Limited 49% 49% 49% 49%
86 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
Carrying Value Commuter Handling Services (Proprietary) Limited 10,104 8,623 7,852 7,852 Imperial Air Cargo (Proprietary) Limited - - - - Protea Hotel ORT (Proprietary) Limited 4,360 1,279 - - Comair Mozambique Limitada - - - - Online World Travel 24 (Proprietary) Limited - - - -
The summarised financial information in respect of the Group's associates are set out below.
5.1 Commuter Handling Services (Proprietary) Limited
Statement of Comprehensive Income Revenue 203,236 192,820
Total comprehensive income 3,703 2,240
Statement of Financial Position Assets Property plant and equipment 4,687 6,903 Deferred tax 4,554 6,907 Net current assets 8,642 213 17,883 14,023
Equity and liabilities Capital and reserves (1,908) (5,611) Borrowings 19,791 19,634 17,883 14,023
Reconciliation to carrying amounts:
Loan to associate 7,852 7,852 7,852 7,852 Group share of retained income (763) (2,244) Goodwill 3,015 3,015 Total carrying value 10,104 8,623
Opening net assets (5,611) (7,851) Comprehensive income 3,703 2,240 Closing net assets (1,908) (5,611)
Commuter Handling Servies (Proprietary) Limited provides passenger handling services to airlines at ACSA-based airports and is incorporated in South Africa and has a June year-end.
87 Notes to the Annual Financial Statements (continued)
5. Investment in and Loans to Associates (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
5.2 Imperial Air Cargo (Proprietary) Limited
Statement of Comprehensive Income Revenue 167,826 181,993
Total comprehensive income 7,450 13,000
Statement of Financial Position Assets Property, plant and equipment 813 1,257 Deferred tax 2,909 126 Net current assets 26,278 17,663 30,000 19,046
Equity and liabilities Capital and reserves (43,257) (50,707) Equity loan 35,537 36,305 Borrowings 37,720 33,448 30,000 19,046
Reconciliation to carrying amounts:
Loan to associate 15,559 15,559 15,559 15,559 Loan impairment (2,582) (4,817) (15,559) (15,559) Group share of accumulated loss (12,977) (10,742) Total carrying value - -
Opening net assets (50,707) (63,707) Comprehensive income 7,450 13,000 Closing net assets (43,257) (50,707)
Imperial Air Cargo (Proprietary) Limited has a June year-end. This associate is a company in the air freight industry.
88 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
5.3 Protea Hotel ORT (Proprietary) Limited
Statement of Comprehensive Income Revenue 22,251 22,151
Total comprehensive income 12,324 10,608
Statement of Financial Position Assets Property, plant and equipment 112,437 117,953 Net current assets 8,205 13,082 120,642 131,035
Equity and liabilities Capital and reserves 17,439 5,115 Deferred tax 7,703 4,513 Borrowings 95,500 121,407 120,642 131,035
Reconciliation to carrying amounts:
Group share of retained income 4,360 1,279 Total carrying value 4,360 1,279
Opening net assets 5,115 (5,493) Comprehensive income 12,324 10,608 Closing net assets 17,439 5,115
Protea Hotel ORT (Proprietary) Limited has a June year-end. This associate is a branded Protea Hotel.
Non-current portion 6,612 2,050 - - Current portion 7,852 7,852 7,852 7,852 Total investment and maximum credit risk exposure 14,464 9,902 7,852 7,852
The maximum credit exposure for the Company and Group amount to R23,411,000 (2013: R23,411,000). In the current year an amount of R2,582,000 (2013: R4,817,000) in the Group and R15,559,000 (2013: R15,559,000) in the Company was provided against the loan. The balance of the loans receivable is considered to be recoverable and not past due.
89 Notes to the Annual Financial Statements (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
6. Goodwill Gross amount 3,668 3,668 Carrying value 3,668 3,668
The recoverable amount of goodwill has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. A growth rate of 7% and a pre-tax discount rate of 25% was used. As a result of the acquisition of Holiday Tours (Proprietary) Limited, the Group’s footprint in Africa has been enhanced and the synergies that the Group will add has resulted in the recognition of goodwill. No impairment has occurred in the current financial year. The goodwill relates to the travel business that is part of the non-airline business.
7. Inventory Catering equipment and consumables 7,608 7,086 7,608 7,086 7,608 7,086 7,608 7,086
8. Trade and Other Receivables Trade receivables 351,750 347,933 336,580 326,410 Impairment allowance (1,096) (3,030) (1,096) (3,030) 350,654 344,903 335,484 323,380 Deposits 140,716 35,827 140,716 35,827 Other receivables 31,856 39,926 31,856 39,926 523,226 420,656 508,056 399,133
Maximum exposure to credit risk 350,654 372,077 335,061 350,554
The standard credit period is 30 days from statement. The average age of the receivables is 31 days. Only customers with whom the Group has a long-standing relationship have access to credit. New customers are rare as the Group prefers selling air tickets for cash rather than on credit.
Included in the Group’s trade receivables balance are debtors with a carrying value of R4.0 million (prior year: R6.4 million) which are past due at the reporting date for which the Group has not provided an impairment as the amounts are still considered recoverable.
Ageing of past due but not impaired trade receivables 120 days - 2,403 2,994 2,403 2,994 120 days + 1,640 3,425 1,640 3,425 4,043 6,419 4,043 6,419
90 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
Ageing of impairment trade receivables 120 days - - - - - 120 days + 1,096 3,030 1,096 3,030 1,096 3,030 1,096 3,030
Reconciliation of impairment allowance Opening balance 3,030 - 3,030 - Provision impairment raised - 3,030 - 3,030 Reversal during the period (1,934) - (1,934) - 1,096 3,030 1,096 3,030
9. Cash Encumbered The Group has pledged cash totalling R20 million (prior year: R20 million) in respect of aircraft lease obligations.
10. Share Capital Authorised: 1,000,000,000 ordinary shares of 1 cent each 10,000 10,000 10,000 10,000 75,000,000 A Class shares of 1 cent each 750 750 750 750 10,000,000 'N' ordinary shares of 1 cent each 100 100 100 100 1,000,000 preference shares of 1 cent each 10 10 10 10 10,860 10,860 10,860 10,860
Issued: 489,176,471 ordinary shares of 1 cent each 4,892 4,892 4,892 4,892 Repurchase of 10% of share capital (48,913,372 ordinary shares of 1 cent each) (489) - (489) - 74,117,647 'A' Class shares of 1 cent each 741 741 741 741 Adjustment in respect of consolidation of Share Trust 4,992,531 (2013: 5,525,864) (50) (55) - - 5,094 5,578 5,144 5,633
At a general meeting of the Group held on 14 September 2006, shareholders approved by way of various special resolutions the creation, specific issue and re-purchase of the 'A' shares, as well as the dividend and voting policy relating to those shares. The 'A' shares will be converted to equity if the hurdle rate is achieved. The hurdle rate is set out as per the circular issued on the 23 August 2006. Refer to Note 17 below. The 'A' shares shall vote as a single class at all meetings of shareholders of the Group, save for resolutions of the Group relating to the rights and privileges of the 'A' shares such that the holders of the 'A' shares shall not be entitled to vote or approve any resolution that would otherwise have been passed or not by the required majority of votes, collectively, of the holders of the ordinary shares and the 'A' shares (other than resolutions relating to the rights and privileges of the 'A' shares). The 'A' shares will not be listed on the JSE and will not be taken into account for the purposes of categorisation transactions under the JSE Listings Requirements. The 'A' shares will not be listed on any security exchange, but are convertible into ordinary shares on a ‘one-for-one’ basis and are not entitled to dividends and voting rights.
91 Notes to the Annual Financial Statements (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
11. Interest-bearing Liabilities
Rand Merchant Bank Aircraft instalment sale agreements Instalment sale agreement payable in 40 quarterly instalments with the final payment due on 12 October 2022. Interest is charged at a variable rate – currently 7.1% (prior year: 6.4%). The current instalment is R13 million. 276,232 308,445 276,232 308,445 Less: Finance raising fees (12,224) (13,675) (12,224) (13,675) One aircraft mortgage serves as collateral covering security with a net book value of R333 million (prior year: R348 million).
Instalment sale agreement payable in 40 quarterly instalments with the final payment due on 12 October 2022. Interest is charged at a variable rate – currently 7.1% (prior year: 6.4%). The current instalment is R13 million. 276,193 308,391 276,193 308,391 Less: Finance raising fees (12,114) (13,568) (12,114) (13,568) One aircraft mortgage serves as collateral covering security with a net book value of R329 million (prior year: R342 million).
Instalment sale agreement payable in 41 quarterly instalments with the final payment due on 12 July 2022. RMB has entered into a selldown agreement with Nedbank for this loan. Interest is charged at a variable rate – currently 7.1% (prior year: 6.4%). The current instalment is R12 million. 254,909 285,588 254,909 285,588 Less: Finance raising fees (11,278) (12,659) (11,278) (12,659) One aircraft mortgage serves as collateral covering security with a net book value of R303 million (prior year: R317 million).
Simulator loan Instalment sale agreement payable in 30 quarterly instalments with the final payment due on 8 June 2018. Interest is charged at a variable rate – currently 9.6% (prior year 9.0%). The current instalment is R3.1 million. A Boeing 737-800 simulator serves as collateral covering security with a net book value: R50 million (prior year: R54 million). 34,909 43,609 34,909 43,609
Private Export Funding Corporation An US Dollar-based aircraft instalment sale agreement payable in 40 quarterly instalments with the final payment due on 15 November 2022. Interest is charged at a fixed rate of 2.275%. The current instalment is US$1 million. 331,452 352,976 331,452 352,976 Less: Finance raising fees (12,438) (13,916) (12,438) (13,916) One aircraft mortgage serves as collateral covering security with a net book value of R338 million (prior year: R354 million).
92 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
Investec Limited Mortgage finance agreement This loan is payable in 28 quarterly instalments with the final payment due on 30 September 2019. Erf 700, Rhodesfield Township, has been pledged as collateral for this mortgage finance agreement. A mortgage bond of R25.9 million has been registered against this property. Interest is charged at a variable rate – currently 9.5% (prior year: 8.9%). The current instalment is R1.3 million. 19,425 23,142 19,425 23,142
Working capital loan This loan is unsecured and is payable in 20 quarterly instalments with the final payment due on 30 September 2013. Interest was charged at a variable rate of 7.6%. The current instalment is R1.7 million. This agreement was settled in full on 30 September 2013. - 1,655 - 1,655
Working capital loan This loan forms part of a facility granted by the bank. Cross- colatarisation of properties serves as security for this loan. There are no repayment terms and interest is charged quarterly at a variable rate – currently 9.3%. 120,463 - 120,463 -
Boeing 737-800 A facility for pre-delivery payments required for four new 737-800 aircraft on order. Cross-colatarisation of other Investec loans stand as security for this loan. The facility is repayable on delivery of the relevant aircraft. The facility is in US Dollar and earns a variable interest rate payable quarterly – currently 4.0%. The aircraft will be delivered between August 2015 and November 2016. 54,213 - 54,213 -
Sub-total 1,319,742 1,269,988 1,319,742 1,269,988 Less: current portion (136,670) (136,221) (136,670) (136,221)
Non-current portion 1,183,072 1,133,767 1,183,072 1,133,767
Total value of interest bearing liabilities 1,319,742 1,269,988 1,319,742 1,269,988 Finance charges 279,114 326,546 279,114 326,546 Total interest-bearing liability commitments 1,598,856 1,596,534 1,598,856 1,596,534 Total commitments for year one 201,527 205,043 201,527 205,043 Total commitments for year two to five 867,027 740,447 867,027 740,447 Total commitments after year five 530,302 651,044 530,302 651,044
Allocation of present valued amounts 1,319,742 1,269,988 1,319,742 1,269,988 Capital commitments for year one 136,670 136,221 136,670 136,221 Capital commitments for year two to five 689,623 513,505 689,623 513,505 Capital commitments after year five 493,449 620,262 493,449 620,262
93 Notes to the Annual Financial Statements (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
12. Deferred Taxation
On temporary differences arising from: Property, plant and equipment 269,507 217,629 269,507 217,629 Staff obligations and accruals (63,390) (60,029) (63,390) (60,029) Unflown ticket liability (48,060) (33,315) (48,060) (33,315) Prepayments 9,632 11,411 11,169 12,393 167,689 135,696 169,226 136,678
Deferred taxation reconciliation Opening balance 135,696 99,039 136,678 99,241 Deferred taxation – current 31,993 36,657 32,548 37,437 Closing balance 167,689 135,696 169,226 136,678
There are no unrecognised deferred taxation assets or losses.
13. Trade and Other Payables Trade payables 1,039,856 802,754 1,017,927 780,263 Cash-settled, share-based payment - - - - Share options granted to employees 21,666 4,250 21,666 4,250 Recognised as long-term portion (21,666) (4,250) (21,666) (4,250) Unflown ticket liability 270,391 217,729 270,391 217,729 Other 36,315 38,027 36,315 38,027 1,346,562 1,058,510 1,324,633 1,036,019
Trade creditor terms vary, depending on the agreements. An average of 30 days from statement is fair. Average days outstanding is 37 days.
Cash-settled, share-based payment – share options are granted to certain employees in the Group. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in liabilities. This is a long-term liability and will be paid in the future.
Unflown ticket liability is all monies received from passengers prior to reporting period and relating to flights not yet flown.
14. Provisions Leave pay provision 48,128 43,994 48,128 43,994 Opening balance 43,994 41,952 43,994 41,952 - Raised 15,305 13,025 15,305 13,025 - Utilised (11,171) (10,983) (11,171) (10,983)
Bonus provision 51,591 72,218 51,591 72,218 Opening balance 72,218 31,142 72,218 31,142 - Raised 68,258 85,943 68,258 85,943 - Utilised (88,885) (44,867) (88,885) (44,867)
99,719 116,212 99,719 116,212
In terms of Comair’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle. Leave days have been capped, depending on the level of employment of the employees.
94 Integrated Annual Report 2014
The bonus scheme consists of performance bonuses which are dependent on the achievement of financial and non-financial targets. Bonuses are payable annually in December for all staff other than Executives. Executive bonuses are paid in July.
15. Financial Risk Management and Financial Instruments The Group finances its operations through a mixture of accumulated profits, current borrowings and non-current borrowings. The Group also enters into Forward Exchange Contracts to manage the currency risks of its operations. The main risks arising in the normal course of business from the Group’s financial instruments are currency, interest rate, credit and liquidity risk. This note presents information on the Group’s exposure to these risks. The Board of Directors is responsible for risk management activities in the Group. The carrying values equate to the fair values of each financial instrument.
The carrying value of short-term financial instruments approximate fair value due to their short-term nature, and all interest-bearing financial liabilities carried at amortised cost bear interest at market-related rates. Hence the carrying values of these financial instruments equate to their fair values.
Identification of Financial Instruments
Financial At fair value liabilities through Loans and at amortised Non-financial Fair value profit (loss) Receivables cost instruments Total
R’000 R’000 R’000 R’000 R’000 R’000
2014 Assets Non-current assets Property, plant and equipment - - - - 2,545,033 2,545,033 Intangible assets - - - - 31,106 31,106 Investments in associates - - - - 6,612 6,612 Goodwill - - - - 3,668 3,668
Current assets Inventories - - - - 7,608 7,608 Trade and other receivables 350,654 - 350,654 - 172,572 523,226 Investments in and loans to associates 7,852 - 7,852 - - 7,852 Taxation - - - - 30,540 30,540 Cash and cash equivalents 867,703 - 867,703 - - 867,703 Total assets 1,226,209 - 1,226,209 - 2,797,139 4,023,348
Equity and Liabilities Capital and reserves Share capital - - - - 5,094 5,094 Non-distributable reserves - - - - 27,424 27,424 Accumulated profit - - - - 1,035,452 1,035,452
Non-current liabilities Interest-bearing liabilities 1,183,072 - - 1,183,072 - 1,183,072 Deferred taxation - - - - 167,689 167,689 Share-based payments - - - - 21,666 21,666
Current liabilities Trade and other payables 1,076,171 - - 1,076,171 270,391 1,346,562 Provisions - - - - 99,719 99,719 Interest-bearing liabilities 136,670 - - 136,670 - 136,670 Total liabilities 2,395,913 - - 2,395,913 1,627,435 4,023,348
95 Notes to the Annual Financial Statements (continued)
15. Financial Risk Management and Financial Instruments (continued)
Financial At fair value liabilities through Loans and at amortised Non-financial Fair value profit (loss) Receivables cost instruments Total
R’000 R’000 R’000 R’000 R’000 R’000
2013 Assets Non-current assets Property, plant and equipment - - - - 2,314,082 2,314,082 Intangible assets - - - - 41,475 41,475 Investments in and loans to associates - - - - 2,050 2,050 Goodwill - - - - 3,668 3,668
Current assets Inventories - - - - 7,086 7,086 Trade and other receivables 372,077 - 372,077 - 48,579 420,656 Investments in associates 7,852 - 7,852 - - 7,852 Taxation - - - - 30,942 30,942 Cash and cash equivalents 778,045 - 778,045 - - 778,045 Total assets 1,157,974 - 1,157,974 - 2,447,882 3,605,856
Equity and Liabilities Capital and reserves Share capital - - - - 5,578 5,578 Share premium - - - - 123,631 123,631 Non-distributable reserves - - - - 23,996 23,996 Accumulated profit - - - - 867,995 867,995
Non-current liabilities Interest-bearing liabilities 1,133,767 - - 1,133,767 - 1,133,767 Deferred taxation - - - - 135,696 135,696 Share-based payments - - - - 4,250 4,250
Current liabilities Trade and other payables 840,781 - - 840,781 217,729 1,058,510 Provisions - - - - 116,212 116,212 Interest-bearing liabilities 136,221 - - 136,221 - 136,221 Total liabilities 2,110,769 - - 2,110,769 1,495,087 3,605,856
Financial assets are substantially the same for the Group and the Company, however loans to subsidiaries amount to R37.3 million (2013: R37.3 million) and are classified as loans and receivables.
Financial liabilities are substantially the same for the Group and the Company.
Interest Rate Risk The Group is exposed to interest rate risk as it borrows and places funds. This risk is managed by managing the Group’s exposures on long-term loans and placing surplus funds in investments that yield a market-linked return.
96 Integrated Annual Report 2014
Management reviews the interest rate risk on an ongoing basis. Where new loans are entered into, management compares interest rates offered by various institutions and where considered more favourable, may enter into loans in foreign currency. The interest rate risk is viewed in conjunction with the foreign exchange risk.
The Group, as part of its financing activities, enters into foreign denominated interest-bearing loans. The foreign exchange rate exposure is monitored by management in conjunction with the interest rate exposure which would have been incurred had a Rand-denominated loan been taken out. Refer to sensitivity analysis below.
Credit Risk Credit risk relates to the potential of non-recovery of bank and call deposits and loans and trade receivables. At the reporting date, the Group did not consider there to be any significant concentration of credit risk which has not been adequately provided for.
Liquidity Risk The liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources and unutilised borrowing facilities are maintained.
Maturity profile of financial liabilities at 30 June 2014
Carrying Contractual Within one Two to five More than five No fixed amount cash flows year years years terms
Group R’000 R’000 R’000 R’000 R’000 R’000
2014 Secured non-current borrowings 1,183,072 1,397,329 - 867,027 530,302 - Secured short-term borrowings 136,670 201,527 201,527 - - - Trade and other payables 1,076,171 1,076,171 1,076,171 - - - Total financial liabilities – Group and Company 2,395,913 2,675,027 1,277,698 867,027 530,302 - Total financial assets – Group 1,232,821 1,232,821 1,218,357 - - 14,464
2013 Secured non-current borrowings 1,133,767 1,391,491 - 740,447 651,044 - Secured short-term borrowings 136,221 205,043 205,043 - - - Trade and other payables 840,781 840,781 840,781 - - - Total financial liabilities – Group and Company 2,110,769 2,437,315 1,045,824 740,447 651,044 - Total financial assets – Group 1,147,527 1,147,527 1,137,625 - - 9,902
Foreign Currency Risk The Group undertakes certain transactions denominated in foreign currency, which therefore have exposure to exchange rate variations. The Group may enter into forward exchange contracts to manage exchange rate exposure. Where appropriate, open positions are maintained. The Group does not speculate in derivative instruments and all foreign exchange contracts are supported by underlying transactions.
Approximately 48% of operating costs are incurred and approximately 30% of revenue is based in foreign currency. The following uncovered foreign currency amounts are included in the Financial Statements at year end: net short-term liabilities of US$6,774,987 (2013: US$4,294,324) and GBP1,480,062 (2013: GBP1,027,964) and net short term receivables of GBP3,993,836 (2013: GBP5,820,456).
The Group, as part of its financing activities, enters into foreign denominated interest-bearing loans. The foreign exchange rate exposure is monitored by management in conjunction with the interest rate exposure which would have been incurred had a Rand-denominated loan been taken out.
97 Notes to the Annual Financial Statements (continued)
15. Financial Risk Management and Financial Instruments (continued)
Sensitivity Analysis The sensitivity analysis below calculates the impact of movements in the foreign exchange rates in which the Group transacts as well as in interest rates on the Group’s profits. The analysis is based on closing balances at year end.
Foreign exchange risk Interest rate risk profit (loss) should the Rand exchange rate profit (loss) should the interest rate change by 5% change by 2%
Amount Amount Carrying exposed to Rand Rand exposed to Rate Rate Group value risk appreciation depreciation risk increase decrease
2014 Financial asset R'000 Cash and cash equivalents 867,703 285,754 (14,288) 14,288 867,703 17,354 (17,354) Trade and other receivables 350,654 70,148 (3,507) 3,507 Impact of financial assets on: - profit before tax - - (17,795) 17,795 - 17,354 (17,354) - profit after tax - - (12,812) 12,812 - 12,495 (12,495)
Financial liabilities R'000 Interest-bearing liabilities 1,319,742 331,452 - - 1,319,742 (26,395) 26,395 Trade and other payables 1,076,171 323,062 16,153 (16,153) - - - Impact of financial liabilities on: - profit before tax - - 16,153 (16,153) - (26,395) 26,395 - profit after tax - - 11,630 (11,630) - (19,004) 19,004
Overall impact on profit after taxation - - (1,182) 1,182 - (6,509) 6,509
Interest and related foreign currency amounts incurred on account of aircraft and other qualifying assets under construction are capitalised and added to the asset concerned and therefore do not affect profit or loss.
The movements are recognised in other comprehensive income until such time as the other qualifying asset is complete and the aircraft has been delivered and recognised, in which case these amounts are no longer recognised and are expensed in profit or loss when incurred. The effect of a 5% movement in foreign exchange would be Rnil (2013: Rnil) and of a 2% interest rate adjustment would be Rnil (2013: Rnil).
The effect of the movement in the interest rate was only calculated for the estimated period that the loan will be outstanding.
98 Integrated Annual Report 2014
Foreign exchange risk Interest rate risk profit (loss) should the Rand exchange rate profit (loss) should the interest rate change by 5% change by 2%
Amount Amount Carrying exposed to Rand Rand exposed to Rate Rate Group value risk appreciation depreciation risk increase decrease
2013 Financial asset R'000 Cash and cash equivalents 778,045 222,605 (11,130) 11,130 778,045 15,561 (15,561) Trade and other receivables 372,077 9,075 (454) 454 Impact of financial assets on: - profit before tax - - (11,584) 11,584 - 15,561 (15,561) - profit after tax - - (8,340) 8,340 - 11,204 (11,204)
Financial liabilities R'000 Interest-bearing liabilities 1,269,988 352,976 - - 1,269,988 (25,400) 25,400 Trade and other payables 840,781 234,994 11,750 (11,750) - - - Impact of financial liabilities on: - profit before tax - - 11,750 (11,750) - (25,400) 25,400 - profit after tax - - 8,460 (8,460) - (18,288) 18,288
Overall impact on profit after taxation - - 119 (119) - (7,084) 7,084
Capital Risk Management The Group’s objectives when managing capital is to safeguard the entity’s ability to continue as a going concern.
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
The Group monitors capital on the basis of the debt-to-adjusted-capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total interest-bearing debt (as shown in the Statement of Financial Position) less cash and cash equivalents. Adjusted capital comprises all components of equity (i.e. ordinary shares, share premium, accumulated profits and other reserves).
The debt-to-adjusted capital ratios at 30 June 2014 and 2013 were as follows:
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
Total liabilities, excluding deferred taxation 2,787,689 2,448,960 2,765,760 2,426,469 Less: Cash and cash equivalents (867,703) (778,045) (858,118) (766,628)
Net debt 1,919,986 1,670,915 1,907,642 1,659,841 Adjusted equity 1,067,970 1,021,200 1,057,595 1,014,103
Adjusted-capital ratio 1.80:1 1.64:1 1.80:1 1.64:1
99 Notes to the Annual Financial Statements (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
16. Revenue 6,282,219 5,386,581 6,224,285 5,366,240 Flight revenue 5,722,816 5,115,761 5,722,816 5,115,761 Service-based 136,769 122,571 126,715 112,394 Commission-based 413,190 141,640 365,310 131,476 Other 9,444 6,609 9,444 6,609
17. Profit from Operations Operating expenses are stated after incorporating the following items: Audit fees 670 656 670 656 Managerial, technical, administrative and secretarial services 55,583 21,435 55,583 21,435
Directors' emoluments (included in total staff costs) 35,049 21,717 35,049 21,717 - for services as Directors and related committee work 2,680 2,240 2,680 2,240 - for managerial and other services 13,804 14,108 13,804 14,108 - retirement and medical benefits 1,149 1,119 1,149 1,119 - share-based payments 17,416 4,250 17,416 4,250 Only Directors are considered key management A comprehensive breakdown per Director is included in the Directors' Report on pages 63 and 64.
Rentals under operating leases 218,615 309,324 221,091 309,324 - property rentals 20,171 18,855 22,647 18,855 - aircraft rentals 193,644 286,142 193,644 286,142 - equipment and vehicle rentals 4,800 4,327 4,800 4,327
Total staff costs 738,003 671,936 734,904 671,936 Employment costs 693,728 633,715 690,629 633,715 Contributions to defined contribution funds 44,275 38,221 44,275 38,221 Number of employees 2,026 1,950
Profit (loss) on exchange differences 34,350 (12,199) 34,350 (12,199)
Impairments (2,235) 6,817 - 17,559 Loan to associate (2,235) 4,817 - 15,559 Trading loan in subsidiary - 2,000 - 2,000
100 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
Equity-settled Share-based Payment (BEE Transaction) 3,428 3,428 3,428 3,428 This amount relates to the BEE transaction concluded in 2007 and is being equity accounted for (in terms of IFRS 2) using the Black-Scholes Option Valuation Model. The principal assumptions in applying the value of the options were as follows: a. Volatility of 50%; b. Eight years to date of exercise; c. Dividend yield of 5%; d. Risk-free rate of 9.15%; and e. Strike price of R3.03.
Cash-settled, Share-based Payments 17,416 4,250 17,416 4,250 This amount relates to the long-term incentive scheme concluded in 2013 and is being cash accounted for (in terms of IFRS 2) using the Black-Scholes Option Valuation Model. The principal assumptions in applying the value of the options were as follows: a. Total vesting period is 36 months; b. Only holders in the employment of the Group after the vesting period will be entitled to receive a cash payout. For the purposes of the calculation it was estimated that all employees will remain in the employment of the Group; c. Strike price is R1.50; d. Risk-free rate is 5.22%; and e. Dividend yield was 2%.
18. Interest Expense Total interest paid 78,830 65,079 78,807 64,883 Bank interest 77,340 61,641 77,317 61,445 Interest capitalised to pre-delivery payments 1,490 3,438 1,490 3,438
Less: amount capitalised as borrowing costs (see Note 1) (1,490) (3,438) (1,490) (3,438) Net interest 77,340 61,641 77,317 61,445
101 Notes to the Annual Financial Statements (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
19. Taxation Normal taxation – current 77,066 66,478 76,316 63,629 Deferred taxation – current 31,993 36,657 32,548 37,437 109,059 103,135 108,864 101,066
Reconciliation of taxation rate % % % % South African normal taxation rate (28.0) (28.0) (28.0) (28.0) Taxation effect of: Exempt income 0.1 0.1 0.1 0.1 Assessed losses utilised 0.1 0.1 0.1 0.1 Disallowable expenditure (1.4) (3.3) (1.4) (3.1) Effective taxation rate (29.2) (31.1) (29.2) (30.9)
20. Earnings per Share Earnings attributable to ordinary shareholders 264,851 227,526 Less: IAS 16 (profit) on disposal of property, plant and equipment (524) (984) Less: IAS 36 (reversal of impairment) impairment to loans to associates (2,235) 4,817 Add: taxation effect of profit on disposal 147 276 Headline earnings attributable to ordinary shareholders 262,239 231,635
Weighted ordinary shares in issue ('000) 453,856 483,650 Ordinary shares in issue 440,263 489,176 Adjustment in respect of share buy-back 18,586 - Adjustment in respect of consolidation of Share Trust (4,993) (5,526)
Adjustment for dilutive effect of share options in issue 483 527 Adjustment for dilutive effect of BEE transaction 17,512 -
Diluted weighted ordinary shares in issue ('000) 471,851 484,177
Earnings per share (cents) 58.4 47.0 Headline earnings per share (cents) 57.8 47.9 Diluted earnings per share (cents) 56.1 47.0 Diluted headline earnings per share (cents) 55.6 47.8
Dividends per share paid (cents) 15.0 5.0
102 Integrated Annual Report 2014
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
21. Cash Generated by Operations Profit before taxation 373,910 330,661 371,072 326,070 (Reversal of impairment) impairment (2,235) 6,817 - 17,559 Depreciation 290,747 241,582 290,140 239,708 Equity-settled BEE transaction 3,428 3,428 3,428 3,428 Cash-settled share-based payments 17,416 4,250 17,416 4,250 Share of (profit) loss from associates (2,327) 1,725 - - Interest expense 77,340 61,641 77,317 61,445 Interest received (32,149) (20,217) (31,515) (19,856) Profit on disposal of assets (524) (984) (524) (984) Cash from operations before working capital changes 725,606 628,903 727,334 631,620 Movement in working capital 362,732 325,745 356,940 315,428 - Inventory movement (522) 4,303 (522) 4,303 - Accounts receivable movement 4,995 8,543 (5,161) 11,311 - Accounts payable movement 358,259 312,899 362,623 299,814
1,088,338 954,648 1,084,274 947,048
22. Taxation Paid Taxation owing at beginning of year 30,942 14,948 30,558 14,919 Taxation charge for the year (77,066) (66,536) (76,316) (63,631) Taxation receivable at end of the year (30,540) (30,942) (28,999) (30,558) Taxation paid (76,664) (82,530) (74,757) (79,270)
23. Retirement Benefits
Post-retirement Benefits The Group contributes to the Evergreen Pension Fund, which is governed by the Pension Funds Act (Act No. 24 of 1956). The fund covers the majority of its employees and is a defined contribution scheme. Contributions paid by Group companies are charged against income as incurred.
103 Notes to the Annual Financial Statements (continued)
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
24. Operating Lease Commitments
Commitments for year one Aircraft 188,567 169,759 188,567 169,759 188,567 169,759 188,567 169,759
Commitments for year two to five Aircraft 555,464 540,914 555,464 540,914 555,464 540,914 555,464 540,914
Commitments after year five Aircraft 116,847 174,472 116,847 174,472 116,847 174,472 116,847 174,472
Total operating lease commitments 860,878 885,145 860,878 885,145
Leasing Arrangements – Aircraft Generally medium-term (five-year) leasing agreements on aircraft.
Currently the Group has two aircraft on South African Rand payment terms, which are repayable at R850,000 each per month, and one aircraft at R1 million, all of which have been straight lined. The Group has entered into a further two aircraft leases on South African Rand payment terms of R610,500 per month. There are two aircraft leases at market-related US Dollar amounts which have no escalation clauses in the agreements and which are repayable at US$135,000 each per month. There are a further three aircraft lease agreements at market-related US Dollar amounts which have no escalation clauses in the agreement which are repayable at US$160,000 each per month. Comair has entered into two aircraft lease agreements at rates of US$210,000 each per month, which have no escalation clauses in them. Further leases have been entered into at rates of US$228,000 per month, US$220,000 per month and US$255,000 per month. These leases are included in the operating lease commitments outlined above.
25. Borrowing powers There are no restrictions on the Group’s borrowing powers.
26. Share Incentive Trust
Staff Share Incentive Scheme (Excluding BEE Equity-settled, Share-based Payment) In terms of the Staff Share Incentive Scheme, shares are offered on an option or outright sale basis. Options vest over a period of one to five years. All options must be taken up by way of purchase by no later than ten years after the date of grant. The exercise price of the option is not less than the market value of the ordinary shares on the date preceding the day of grant and the option is exercisable provided the participant has remained in the Group’s employ until the option vests. In the case of retirement/death/retrenchment, all options immediately vest. Options must be converted into shares.
In the event of retirement/death/retrenchment of a participant, options may be taken up and converted into cash within 12 months of such an event. The Directors of the Group have the discretion to extend this by a further 12 months. In the case of the resignation of a participant, options which have vested may be exercised within 30 days after date of resignation. Options which have not vested will be forfeited.
104 Integrated Annual Report 2014
The Staff Share Incentive Scheme is allowed to hold a total of 7.5% (36.7 million shares) of issued share capital in Comair Limited. Currently the scheme holds 1.1% (prior year: 1.1%) of issued share capital. The maximum number of options to be held by any participant in the scheme shall not exceed 1% (4.2 million shares) of the ordinary shares then in issue. The share option liability as per IFRS 2 at year end was Rnil (prior year: Rnil) based on the closing share price of R4.48 (prior year: R2.65).
The following table illustrates the number and weighted average exercise prices of share options held by eligible participants, including Directors:
2014 2014 2013 2013
Weighted Weighted average average exercise price exercise price Number of Number of share options R share options R
Balance at beginning of period 1,274,667 1.55 1,274,667 1.55 Options exercised (533,333) 1.65 - - Balance at end of period 741,334 1.55 1,274,667 1.55
Share options extended and accepted during the year were done at the ruling market price on the date preceding the extension date.
The options outstanding at 30 June 2014 become unconditional between the following dates:
Subscription 2014 2013 price Number of Number of R share options share options
1 September 2004 and 1 September 2007 0.80 33,334 66,667 5 December 2005 and 5 December 2010 1.70 133,000 233,000 5 June 2006 and 5 June 2011 1.57 575,000 975,000 Total 741,334 1,274,667
Should the participant resign from the Group before options fully vest, the unvested portion will be forfeited.
27. Group and Company Capital Commitments and Contingencies Comair has made pre-delivery payments of R152 million prior to year end towards the delivery of four Boeing 737-800 aircraft in late 2015 and early 2016. The Group has a remaining commitment to Boeing for R1.5 billion at year end (prior year: R1.7 billion), the funding of which will be finalised closer to the time of delivery. Pre-delivery payment finance has been arranged through Investec Bank.
Comair has also made deposits of R102 million towards the purchase of eight Boeing 737-8 MAX aircraft for delivery from 2019 to 2021. Pre-delivery payments on these aircraft will commence in 2017. At year end the Group has a remaining commitment to Boeing for R4.6 billion (prior year: Nil), payable from 2017 to 2021, the funding of which will be finalised closer to the time of delivery.
Comair has entered into two sales agreements with Qantas to purchase two Boeing 737-400 aircraft which will be delivered during the 2015 financial year. The total purchase price for the two aircraft, payment for which will be made in cash, is R44 million.
105 Notes to the Annual Financial Statements (continued)
27. Group and Company Capital Commitments and Contingencies (continued)
Group
2014 2013
R’000 R’000
Financial year 2014 - 197,413 Financial year 2015 315,652 261,756 Financial year 2016 982,063 945,579 Financial year 2017 336,797 324,285 1,634,512 1,729,033
The Group has signed a subordination agreement with Imperial Air Cargo (Pty) Ltd (per Note 5), which would represent a contingent liability in the amount of R13 million. (2013: R10.7 million)
28. New Accounting Pronouncements Standards in issue at the date of authorisation of the financial statements that have not been early adopted.
Annual periods Standard Details of amendment beginning on or after IFRS 2: Share-based Payments Annual Improvements 2010–2012 Cycle: amendments added the definitions of 1 July 2014 performance conditions and service conditions and amended the definitions of vesting conditions and market conditions. IFRS 3: Business Annual Improvements 2010–2012 Cycle: amendments to the measurement 1 July 2014 Combinations requirements for all contingent consideration assets and liabilities including those accounted for under IFRS 9. Annual Improvements 2011–2013 Cycle: amendments to the scope paragraph for the 1 July 2014 formation of a joint arrangement. IFRS 8: Operating Segments Annual Improvements 2010–2012 Cycle: amendments to some disclosure 1 July 2014 requirements regarding the judgements made by management in applying the aggregation criteria, as well as those to certain reconciliations. IFRS 9: Financial Instruments New standard that forms the first part of a three part project to replace IAS 39 Financial 1 January 2015 Instruments: Recognition and Measurement. The IASB aims to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’ 1 January 2018 (IAS 39) in its entirety with IFRS 9. To date, the chapters dealing with recognition, classification, measurement, de‑recognition of financial assets and liabilities and hedge accounting have been issued. Chapters dealing with impairment methodology are still being developed. Further, in November 2011, the IASB tentatively decided to consider making limited modifications to IFRS 9's financial asset classification model to address application issues. IFRS 10 Consolidated IFRS 10 exception to the principle that all subsidiaries must be consolidated. Entities 1 January 2014 Financial Statements meeting the definition of ‘Investment Entities’ must be accounted for at fair value under IFRS 9, Financial Instruments, or IAS 39, Financial Instruments: Recognition and Measurement. IFRS 11: Joint Arrangements Amendments to provide guidance on the accounting for the acquisition of an interest in 1 January 2016 a joint operation in which the activity of the joint operation constitutes a business. IFRS 12: Disclosure of New disclosures required for Investment Entities (as defined in IFRS 10). 1 January 2014 Interests in Other Entities
106 Integrated Annual Report 2014
Annual periods Standard Details of amendment beginning on or after IFRS 13: Fair Value Annual Improvements 2010–2012 Cycle: amendments to clarify the measurement 1 January 2013 Measurement requirements for those short‑term receivables and payables. Annual Improvements 2011–2013 Cycle: amendments to clarify that the portfolio 1 July 2014 exception applies to all contracts within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9. IFRS 15: Revenue from New guidance on recognition of revenue that requires recognition of revenue in a 1 January 2017 Contracts with Customers manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. IAS 16: Property, Plant and Annual Improvements 2010–2012 Cycle: amendments to the revaluation method – 1 July 2014 Equipment proportionate restatement of accumulated depreciation. Amendments to prohibit the use of a revenue‑based depreciation method for property, 1 January 2016 plant and equipment, as well as guidance in the application of the diminishing balance method for property, plant and equipment. IAS 24: Related Party Clarification of the definition of a related party. 1 July 2014 Disclosures IAS 27: Consolidated and Requirement to account for interests in Investment Entities' at fair value under IFRS 9, 1 January 2014 separate financial statements Financial Instruments, or IAS 39, Financial Instruments: Recognition and Measurement, in the separate financial statements of a parent. IAS 36: Impairment of Assets The amendment of IAS 36 clarifies the required disclosures of information about the 1 January 2014 recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. IAS 38: Intangible Assets Annual Improvements 2010–2012 Cycle: Amendments to the revaluation method ‑ 1 July 2014 proportionate restatement of accumulated depreciation. Amendments present a rebuttable presumption that a revenue‑based amortisation 1 January 2016 method for intangible assets is inappropriate except in two limited circumstances, as well as provide guidance in the application of the diminishing balance method for intangible assets. IAS 40: Investment Properties Annual Improvements 2011–2013 Cycle: amendments to clarify the interrelationship 1 July 2014 between IFRS 3 and IAS 40 when classifying property as investment property or owner‑occupied property.
Annual periods Interpretations beginning on or after IFRIC Interpretation 21: Levies 1 January 2014
Management anticipates that all of the above standards and interpretations will be adopted in the Group’s financial statements in the effective period and that the adoption of these standards and interpretations will have no material impact on the financial statements of the Group in the period of initial application.
107 Notes to the Annual Financial Statements (continued)
29. Related Parties
Subsidiaries View Note 4 for investments in subsidiaries. Associates View Note 5 for investments in associates. Share Incentive Trust Inspect Note 3 for the details. Directors Inspect Directors’ emoluments on pages 63 and 64 and in Note 16.
Group Company
2014 2013 2014 2013
R’000 R’000 R’000 R’000
Related Party Balances
Loan accounts – owing (to) by related parties Alooca Technologies (Proprietary) Limited - - 27,517 28,212 Aconcagua 32 Investments (Proprietary) Limited - - 2,527 5,866 Kulula Air (Proprietary) Limited - - 3,823 3,290 Commuter Handling Services (Proprietary) Limited 7,852 7,852 7,852 7,852 Imperial Air Cargo (Proprietary) Limited 15,559 15,559 15,559 15,559 Comair Share Incentive Trust - - 3,814 5,337
Amounts included in trade receivables (trade payables) regarding related parties Imperial Air Cargo (Proprietary) Limited - 71 - 71 Kulula Air (Proprietary) Limited 3,802 1,769 3,802 1,769
Related Party Transactions
Rent paid to related parties Aconcagua 32 Investments (Proprietary) Limited - - 1,510 1,374 Alooca (Proprietary) Limited - - 966 878
Service recovery Kulula Air (Proprietary) Limited - - 2,400 2,400
30. Subsequent Events The Directors are not aware of any matter or circumstances arising since the end of the period under review that would significantly affect or have a material impact on the financial position of the Group or Company.
108 Integrated Annual Report 2014
Notice of Annual General Meeting
A member of the Company entitled to attend and vote at the below-mentioned Annual General Meeting (AGM) is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead. A proxy need not be a member of the Company. Meeting attendees will be required to provide reasonably satisfactory identification before being allowed to participate in or vote at the AGM. Forms of identification that will be accepted include original and valid South African identity documents, driver’s licences and passports.
This document is important and requires your immediate attention.
Comair Limited Registration number 1967/006783/06 Incorporated in the Republic of South Africa ISIN Code: ZAE000029823 Share Code: COM (“Comair” or “the Company” or “the Group”)
Notice is hereby given in terms of section 62(1) of the Companies Act (Act No. 71 of 2008), as amended (the Companies Act) that the AGM of shareholders of the Company will be held at the Comair Operation Building, corner Whirlwind and Fortress streets, Rhodesfield, 1619, on 5 November 2014 at 13h00 to consider, and if deemed fit, to pass the ordinary and special resolutions set out below.
This Notice has been sent to shareholders of the Company who were recorded as such in the Company’s security register on 19 September 2014, being the notice record date set by the Board of the Company in terms of the Companies Act, determining which shareholders are entitled to receive Notice of the Annual General Meeting.
Electronic Participation Shareholders or their proxies are able to attend, but not participate and vote at the Annual General Meeting by way of a teleconference call. Should you wish to make use of this facility, please contact Derek Borer at e-mail: [email protected], by no later than 12h00 on Monday, 3 November 2014. Shareholders will:
• Be required to provide reasonably satisfactory identification; and • Be billed separately by their own telephone service providers for their telephone call to participate in the meeting.
The Notice of meeting includes the attached Proxy Form.
Ordinary Resolutions
1. Consideration of Annual Financial Statements
Ordinary Resolution Number 1 RESOLVED THAT the Audited Annual Financial Statements, together with the report of the Board of Directors of the Company (Board), the Auditors’ Report and the Report by the Audit Committee of the Company and the Group for the year ended 30 June 2014, be and are hereby received and adopted.
Reason and effect of Ordinary Resolution Number 1 The reason for and the effect of Ordinary Resolution Number 1 is to adopt the complete audited Annual Financial Statements of the Company and Group, including the Report of the Directors, the Auditors’ Report and the Report by the Audit Committee of the Company and the Group for the year ended 30 June 2014.
109 Notice of Annual General Meeting (continued)
2. Re-appointment of External Auditors
Ordinary Resolution Number 2 RESOLVED THAT the re-appointment of Grant Thornton (Jhb) Inc. (Grant Thornton), as nominated by the Company’s Audit Committee as independent external auditors of the Company, be and is hereby approved until the conclusion of the next AGM.
Reason and effect of Ordinary Resolution Number 2 The reason for and the effect of Ordinary Resolution Number 2 is to re-appoint Grant Thornton as the auditors of the Company to hold office until the conclusion of the next AGM. The Company’s Audit Committee has recommended, and the Board has endorsed, the above re-appointment.
3. Re-election of Directors
Directors Retiring by Rotation
Ordinary Resolution Number 3.1 RESOLVED THAT Mr Rodney Cyril Sacks, who retires in terms of the Company’s Memorandum of Incorporation (MOI) and who, being eligible, offers himself for re-election, be hereby re-elected as a Director of the Company.
Ordinary Resolution Number 3.2 RESOLVED THAT Mr Gavin James Halliday, who retires in terms of the Company’s MOI and who, being eligible, offers himself for re-election, be hereby re-elected as a Director of the Company.
Ordinary Resolutions Number 3.3 RESOLVED THAT Ms Wrenelle Doreen Stander, who retires in terms of the Company’s MOI and who, being eligible, offers herself for re-election, be hereby re-elected as a Director of the Company.
Directors Appointed During the Year
Ordinary Resolutions Number 3.4 RESOLVED THAT Mr Hubert Rene Brody, who was appointed by the Board as an independent Non-executive Director with effect from 1 January 2014, and who retires in terms of the Company’s MOI and who, being eligible, offers himself for re-election, be hereby re-elected as a Director of the Company.
Ordinary Resolution Number 3.5 RESOLVED THAT Ms Kirsten Emily King, who was appointed by the Board as the Financial Director with effect from 9 June 2014, and who retires in terms of the Company’s MOI and who, being eligible, offers herself for re-election, be hereby re-elected as a Director of the Company.
Reasons and effect of Ordinary Resolutions Numbers 3.1 to 3.5 The reason for and the effect of Ordinary Resolutions Number 3.1 to 3.5 is to re-elect, by way of separate resolutions, Mr Rodney Cyril Sacks, Mr Gavin James Halliday, Ms Wrenelle Doreen Stander, Mr Hubert Rene Brody and Ms Kirsten Emily King as Directors of the Company.
In terms of Article 41 of the Company’s MOI, one third of the Company’s Directors are required to retire at every AGM. These Directors may offer themselves for re-election. In terms of Article 40 of the Company’s MOI, a person appointed to fill a vacancy or appointed as an additional Director shall retire at the AGM but may offer himself/herself for re-election. The Board recommends to the shareholders the re-election of the Directors mentioned above. A brief CV of each of these Directors appears on pages 117 and 118 of the Integrated Annual Report of which this Notice forms part.
110 Integrated Annual Report 2014
4. Election of Members of Audit Committee
Ordinary Resolution Number 4.1 RESOLVED THAT Dr Peter Johannes Welgemoed, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2015.
Ordinary Resolution Number 4.2 RESOLVED THAT Mr Khutso Ignatius Mampeule, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2015.
Ordinary Resolution Number 4.3 RESOLVED THAT, subject to the re-election of Ms Wrenelle Doreen Stander as a Director of the Company pursuant to ordinary resolution number 3.3, Ms Wrenelle Doreen Stander, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2015.
Ordinary Resolution Number 4.4 RESOLVED THAT, subject to the re-election of Mr Gavin James Halliday as a Director of the Company pursuant to ordinary resolution number 3.2, Mr Gavin James Halliday, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2015.
Ordinary Resolution No. 4.5 RESOLVED THAT, subject to the re-election of Mr Hubert Rene Brody as a Director of the Company pursuant to Ordinary Resolution Number 3.4, Mr Hubert Rene Brody, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2015.
Reason and effect of Ordinary Resolutions Numbers 4.1 to 4.5 The reason for and the effect of Ordinary Resolutions Number 4.1 to 4.5 is to elect, by way of separate resolutions, Dr Peter Johannes Welgemoed, Mr Khutso Ignatius Mampeule, Ms Wrenelle Doreen Stander, Mr Gavin James Halliday and Mr Hubert Rene Brody as members of the Audit Committee of the Company.
A brief CV of each of the Directors mentioned above is included on pages 117 to 119 of the Integrated Annual Report of which this Notice forms part. As is evident from these CVs, each of the proposed members of the Audit Committee has the required qualifications and/or experience to fulfil his/her duties.
5. Non-binding Endorsement of Company Remuneration Policy The Company’s Remuneration Policy, as described in the Remuneration Report on pages 55 to 57 of the Integrated Annual Report, of which this Notice forms part, is hereby endorsed by way of a non-binding advisory vote, as recommended in the King Code of Governance Principles and King Report on Governance, commonly referred to as King III.
Reason and effect of non-binding endorsement The reason for and the effect of the above non-binding endorsement is to endorse the Company’s Remuneration Policy on the basis of a non-binding advisory vote.
111 Notice of Annual General Meeting (continued)
Special Resolutions
6. Approval of Non-executive Directors Remuneration – 2013/14
Special Resolution Number 1 RESOLVED THAT the joint remuneration of the Non-executive Directors for their services as Directors of the Company in the amount of R2,680,000 (two million, six hundred and eighty thousand Rand) for the financial year ended 30 June 2014 be and is hereby approved.
Reason and effect of Special Resolution Number 1 The reason for and the effect of Special Resolution Number 1 is to approve the remuneration payable by the Company to its Non-executive Directors for their services as Directors of the Company for the period ended 30 June 2014. The fees payable to Non-executive Directors are based on a fixed annual retainer. The Chairperson and members of every Sub-committee, however, are paid an additional fee for each Sub-committee meeting chaired and/or attended up until the end of the 2014 financial year. No fees are payable to Mr Sacks, Mr Halliday and Ms Stander. Mr van Hoven, in addition to being the Chairperson of the Board and Nominations Sub-committee, is also Chairman of the Comair Pension Fund and as such gets paid a fee for each Pension Fund Trustee meeting attended, which fees were approved by the Company’s shareholders at the Annual General Meeting of 30 October 2013. The fees payable to each Director and further details on the basis of calculation of the remuneration are respectively included in the Annual Financial Statements on pages 68 to 108, and in the Remunerations Report on pages 55 to 57 of the Integrated Annual Report of which this Notice forms part.
7. Approval of Non-executive Directors Remuneration – 2014/15
Special Resolution Number 2 RESOLVED THAT the following fees be approved as the basis for calculating the remuneration of the Non-executive Directors for their services as Directors of the Company for the financial year ending 30 June 2015:
30 June 2014 30 June 2015
Chairman of the Board R1,200,000 R1,284,000 Vice-chairman (2) R350,000 R374,500 Non-executive Directors (5) R150,000 R160,500 Chairperson of each Sub-committee per Sub-committee meeting held R13,000 R13,910 Members of each Sub-committee, per Sub-committee meeting held R6,500 R6,955 Chairperson of Pension Fund Board R13,000 R13,910
Reason and effect of Special Resolution Number 2 The reason for and the effect of Special Resolution Number 2 is to approve the basis for calculating the remuneration payable by the Company to its Non-executive Directors for their services as Directors of the Company for the period ending 30 June 2015. The fees payable to Non-executive Directors are based on a fixed annual retainer. The Chairperson and members of each Sub-committee, however, will be paid an additional fee for each Sub-committee meeting held, subject to attendance at the Sub-committee meeting. No fees are payable to Mr Sacks, Mr Halliday and Ms Stander. Mr van Hoven, in addition to being Chairperson of the Board and the Nominations Sub-committee, is also Chairman of the Comair Pension Fund and as such gets paid a fee for each Pension Fund Trustee meeting held. Further details on the basis of calculation of the remuneration are included in the Remuneration Report on pages 55 to 57 of the Integrated Annual Report of which this Notice forms part.
8. General Authority to Repurchase Shares
Special Resolution Number 3 RESOLVED THAT the Board of Directors of the Company is hereby authorised, by way of a renewable general authority, to approve the purchase of its own ordinary shares by the Company, or to approve the purchase of ordinary shares in the Company by any subsidiary of the Company, provided that:
112 Integrated Annual Report 2014
8.1.1 the Company or the relevant subsidiary is authorised thereto by its MOI; 8.1.2 the general repurchase by the Company and/or any subsidiary of the Company of ordinary shares in the aggregate in any one financial year shall not exceed 10% (ten percent) of the Company issued ordinary share capital as at the beginning of the financial year, provided that the acquisition of shares as treasury shares by a subsidiary of the Company shall not be effected to the extent that in aggregate more than 10% (ten percent) of the number of issued shares in the Company are held by or for the benefit of all the subsidiaries of the Company taken together; 8.1.3 at any point in time, the Company may only appoint one agent to effect any repurchases on the Company’s behalf; 8.1.4 the repurchase of securities being effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and the counter party (reported trades are prohibited); 8.1.5 this general authority shall only be valid until the date of the next AGM or for fifteen (15) months from the date of passing of this Special Resolution Number 3, whichever is the shorter; 8.1.6 in determining the price at which the Company’s ordinary shares are acquired by the Company or any subsidiary in terms of this general authority, the maximum premium at which such ordinary shares may be acquired will be 10% (ten percent) of the weighted average of the market price at which such ordinary shares are traded on the JSE, as determined over the five (5) trading days immediately preceding the date of the repurchase of such ordinary shares by the Company. The JSE should be consulted for a ruling if the Company’s securities have not traded in such five (5) business day period; 8.1.7 the Company or its subsidiary may not repurchase securities during a prohibited period as defined in the JSE Listings Requirements unless they have in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period; and 8.1.8 when the Company or any subsidiary has cumulatively repurchased 3% (three percent) of the initial number of the relevant class of securities, and for each 3% (three percent) in aggregate of the initial number of that class acquired thereafter, an announcement will be made.
8.2 In terms of the general authority given under this special resolution, any repurchase of ordinary shares shall be subject to:
8.2.1 any applicable exchange control regulations and approval at that point in time; 8.2.2 the Companies Act; 8.2.3 the JSE Listings Requirements and any other applicable stock exchange rules, as may be amended from time to time; 8.2.4 the sanction of any other relevant authority whose approval is required in law; and 8.2.5 a resolution by the Board and/or the relevant subsidiary of the Company confirming that the Board of the Company and/or of such relevant subsidiary has authorised the repurchase, that the Company and/or the relevant subsidiary has satisfied the solvency and liquidity tests contemplated in the Companies Act, and that since the test was done there have been no material changes to the financial position of the Group.
The Board is of the opinion that this authority should be in place should it become appropriate to undertake a share repurchase in the future. After having considered the effect of any repurchases of ordinary shares pursuant to this general authority, the Board, in terms of the Companies Act and the JSE Listings Requirements, confirms and undertakes that it will not implement the proposed authority to repurchase the shares unless it is of the opinion that:
• the Company and the Group will be in a position to repay its debt in the ordinary course of business for the next twelve (12) months after the date of the general repurchase; • the assets of the Company and the Group, fairly valued in accordance with International Financial Reporting Standards, will be in excess of the liabilities of the Company and the Group for the next twelve (12) months after the date of the general repurchase; • the share capital and reserves of the Company and the Group will be adequate for the next twelve (12) months after the date of the general repurchase; • available working capital will be adequate to continue the operations of the Company and the Group for the next twelve (12) months after the date of the general repurchase; and • the Company may not enter the market to proceed with the repurchase until the Company’s sponsor, Rand Merchant Bank (A division of FirstRand Bank Limited), has confirmed the adequacy of the Company and the Group’s working capital in writing to the JSE.
113 Notice of Annual General Meeting (continued)
Reason and effect of Special Resolution Number 3 The reason for and the effect of Special Resolution Number 3 is to authorise the Company or any of its subsidiaries, by way of a general authority, to repurchase its issued shares on such terms, conditions and such amounts determined from time to time by the Board subject to the limitations set out above. Please refer to the additional disclosure of information contained in this Notice, which disclosure is required in terms of the JSE Listings Requirements.
Other disclosure in terms of the JSE Listings Requirements Section 11.26 Further to Special Resolution Number 3, the JSE Listings Requirements require the following disclosure, some of which is elsewhere in the Integrated Annual Report of which this Notice forms part:
Directors and management – pages 61 and 62; Major shareholders of the Company – page 122; Directors’ interests in securities – page 60; and Share capital of the Company – note 10 on page 91.
Litigation statement In terms of section 11.26 of the JSE Listings Requirements, the Directors, whose names appear on pages 61 and 62 of the Integrated Annual Report of which this Notice forms part, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous twelve (12) months, a material effect on the Group’s financial position.
Directors’ responsibility statement The Directors, whose names appear on pages 61 and 62 of the Integrated Annual Report, collectively and individually accept full responsibility for the accuracy of the information pertaining to this resolution and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this resolution contains all information required by law and the JSE Listings Requirements.
No material change Other than the facts and developments reported on in the Integrated Annual Report, there have been no material changes in the financial or trading position of the Company and its subsidiaries since the date of signature of the Audit Report and the date of this Notice.
Statement of Board’s intention The Board has no specific intention to effect the provisions of Special Resolution Number 3 but will, however, continually review this position having regard to prevailing circumstances and market conditions, in considering whether to effect the provisions of Special Resolution Number 3.
9. General Authority to Provide Financial Assistance to Related and Inter-related Companies or Corporations
Special Resolution Number 4 RESOLVED THAT the Board is hereby authorised in terms of section 45(3)(a)(ii) of the Companies Act, as a general approval (which approval will be in place for a period of two (2) years from the date of adoption of this Special Resolution Number 4), to authorise the Company to provide any direct or indirect financial assistance (‘financial assistance’ will herein have the meaning attributed to such term in section 45(1) of the Companies Act), that the Board may deem fit to any related or inter-related company or corporation of the Company (‘related and inter-related’ will herein have the meaning attributed to these terms in section 2 of the Companies Act), on the terms and conditions and for the amounts that the Board may determine.
The main purpose for this authority is to grant the Board the authority to provide inter-group loans and other financial assistance for the purpose of funding the activities of the Group. The Board undertakes that:
114 Integrated Annual Report 2014
9.1 it will not adopt a resolution to authorise such financial assistance unless the Directors are satisfied that:
9.1.1 immediately after providing the financial assistance, the Company would satisfy the solvency and liquidity test as contemplated in the Companies Act; and 9.1.2 the terms under which the financial assistance is proposed to be given are fair and reasonable to the Company; and
9.2 written notice of such resolution by the Board shall be given to all shareholders of the Company and any trade union representing the employees:
9.2.1 within ten (10) days after the Board has adopted the resolution, if the total financial assistance contemplated in that resolution, together with any previous such resolutions during the financial year, exceeds zero comma one percent (0.1%) of the Company’s net worth at the time of the resolution; and 9.2.2 within thirty (30) days of the end of the financial year, in any other case.
Reason and effect of Special Resolution Number 4 The reason for and the effect of Special Resolution Number 4 is to provide a general authority to the Board to grant direct or indirect financial assistance to any company or corporation forming part of the Company’s Group of Companies, including in the form of loans or the guaranteeing of their debts. The Board provided such inter-group financial assistance to subsidiaries as disclosed in the Annual Financial Statements in note 4 on pages 84 to 86 of the Integrated Annual Report of which this Notice forms part.
Ordinary Resolution
10. Authorisation for Company Secretary or any Director to Sign Necessary Documents to Give Effect to Resolutions
Ordinary Resolution Number 5 RESOLVED THAT the Company Secretary or any Director be and is hereby authorised on behalf of the Company to sign all documents as may be necessary in order to give effect to the Special and Ordinary Resolutions set out above.
Other Business
11. To Transact any Other Business that may be Transacted at Annual General Meetings
Approvals Required for Resolutions Ordinary Resolutions Numbers 1 to 5 contained in this Notice of AGM require the approval by more than fifty percent (50%) of the votes exercised on the resolutions by shareholders present or represented by proxy at the AGM, and further subject to the provisions of the Companies Act, the MOI of the Company and the JSE Listings Requirements.
Special Resolutions Numbers 1 to 4 contained in this Notice of AGM require approval by at least seventy five percent (75%) of the votes exercised on the resolutions by shareholders present or represented by proxy at the AGM and further subject to the provisions of the Companies Act, the MOI of the Company and the JSE Listings Requirements.
Record Date The record date on which shareholders of the Company must be registered as such in the Company’s Securities Register, which date was set by the Board of the Company in determining which shareholders are entitled to attend and vote at the AGM, is Friday, 31 October 2014. Accordingly the last day to trade in order to be eligible to attend and vote at the meeting is Friday, 24 October 2014.
115 Notice of Annual General Meeting (continued)
Proxy and Voting Procedures A shareholder entitled to attend and vote at the AGM is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead. A proxy need not be a shareholder of the Company. For the convenience of registered shareholders of the Company, a Form of Proxy is enclosed herewith.
Shareholders are requested to lodge their Forms of Proxy with, or to post same to the Company’s Transfer Secretaries, Computershare Investor Services (Pty) Limited, PO Box 61051, Marshalltown, 2107, to be received not later than 48 hours (excluding Saturdays, Sundays and public holidays) before the time appointed for the holding of the AGM, being Wednesday, 5 November 2014. Nevertheless, Forms of Proxy may be lodged at any time prior to the commencement of voting on the resolutions at the AGM.
Any shareholder who completes and lodges a Form of Proxy will nevertheless be entitled to attend and vote in person at the AGM. Any Form of Proxy not received by this time must be handed to the chairperson of the meeting immediately prior to the meeting.
On a show of hands, every shareholder of the Company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the Company shall have one vote for every share held in the Company by such shareholder.
The attached Form of Proxy is only to be completed by those shareholders who are:
• Holding ordinary shares of the Company in certificated form; or • Recorded on the electronic sub-register in ‘own name’ dematerialised form.
Shareholders who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker, and wish to attend the AGM, must instruct their CSDP or broker to provide them with a Letter of Representation, or they must provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement/mandate entered into between them and the CSDP or broker.
Equity securities held by a Share Trust or Scheme will not have their votes at the AGM taken into account for the purposes resolutions proposed in terms of the JSE Listings Requirements.
Note that holders of unlisted securities and treasury shares are not entitled to vote at the AGM.
Proof of Identification Required The Companies Act requires that any person who wishes to attend or participate in a shareholders meeting, must present reasonably satisfactory identification at the meeting. Any shareholder or proxy who intends to attend or participate at the Annual General Meeting must be able to present reasonably satisfactory identification at the meeting for such shareholder or proxy to attend and participate at the meeting. A green bar-coded identification document issued by the South African Department of Home Affairs, a driver’s licence or a valid passport will be accepted as sufficient identification.
By order of the Board
Mr Derek H Borer Company Secretary
8 September 2014 Bonaero Park
116 Integrated Annual Report 2014
Directors Standing for Election or Re-election
1. RC Sacks (Board) (Age: 64) HDip Law, HDip Tax Rodney was born and grew up in South Africa. He graduated from the University of the Witwatersrand in Johannesburg with post-graduate higher diplomas in law and tax law. Rodney was one of the youngest attorneys to be made a partner at Werksmans, one of the largest corporate law firm in South Africa. He was a senior partner when he emigrated to California with his family in August 1989 after spending nearly 20 years with Werksmans.
In 1990 a consortium headed up by Rodney and his partner, Hilton Schlosberg, acquired control of a publicly traded company which was ultimately merged into and became known as Hansen Beverage Company. Hansen Beverage Company (now known as Monster Beverage Corporation) acquired the Hansen’s Natural Soda and Apple Juice business in 1992 for a purchase consideration of some $14.5 million. At that time sales were $17.5 million and the business had 12 employees.
Rodney has been Chairman and Chief Executive Officer of the company since 1990. In 2002 Hansen Beverage Company launched the well-known Monster Energy drink line which has risen to become the best-selling energy drink in the United States and is now sold internationally in more than 114 countries. Under Rodney’s stewardship Monster Beverage Corporation’s sales have grown to in excess of $2.5 billion and the company today employs more than 2,000 people.
2. GJ Halliday (Board and Audit Committee) (Age: 50) BA (Hons) Economics, Geography MBA (Lancaster University) Gavin joined British Airways Plc (BA) in 1986, working in customer service, operational research and marketing, before joining sales as part of the airline’s Global Sales team, where he was involved in the airline’s launch of e-ticket in 1995. He has managed sales teams in Miami; UK; Latin America; and Asia & the Pacific region in 2006, where he was responsible for all sales activity, before joining Europe. At present he is Area General Manager for Europe and Africa.
3. WD Stander (Board and Audit Committee) (Age: 48) BA (Hons) MBA Prior to her appointment as Senior Vice President Public and Regulatory Affairs at Sasol on 1 July 2014, Wrenelle served as Managing Director of Sasol Gas for almost four years. There she successfully managed the transition of natural gas prices to a new regulatory dispensation. This change process spanned three years and involved 314 customers, NERSA and Sasol Gas.
Wrenelle has also served as a Director on a number of subsidiary Boards, including Sasol Gas, Sasol Synfuels International and Sasol Group Services. She currently serves as Chairperson of the Sasol Social and Community Trust, as well as the Sasol Siyakha Trust. She also served as an Executive Committee member of Sasol Synfuels International (SSI).
Before joining Sasol, Wrenelle held various positions within the South African civil aviation industry, including the positions of Deputy CEO of the SACAA and Managing Director of the Air Traffic and Navigation Services Company (ATNS). At ATNS, she continued to promote the commercialisation of aviation service provision and successfully oversaw the implementation of an African-wide air navigation communication service on a user pays basis.
In 2005, Wrenelle was elected to the Executive Committee of the Commercial Air Navigation Service Organisation (CANSO), an international body responsible for promoting and protecting the interests of commercial air navigation service providers, where she worked on a variety of projects intended to improve global air navigation infrastructure and customer service.
117 Notice of Annual General Meeting (continued)
Wrenelle started her career in the minerals and energy NGO sector where, amongst others, she was involved in positioning the Minerals and Energy Policy Centre (MEPC) to be less dependent on donor funding, established the Minerals and Energy Training Institute (MEETI), and was a contributor to the Energy Policy White Paper.
Wrenelle holds a BA (Hons) degree from the University of Cape Town, as well as an MBA from Oxford Brookes University in the United Kingdom. She has a 21-year-old daughter, Emma, who is a student at the University of Cape Town.
4. HR Brody (Board and Audit Committee) Age: 50 CA(SA) Hubert was, until recently, the Chief Executive of Imperial Holdings, the South Africa-based diversified mobility group with annual turnover of R100 billion and assets of over R40 billion. At Imperial he chaired various group companies, notably the Regent Group, Imperial Bank, Imperial Logistics International and Associated Motor Holdings.
Hubert is a Chartered Accountant. He studied at the University of Stellenbosch and qualified as a CA in 1989. He previously worked in the Property, IT and banking industries, and before being transferred to Imperial Holdings in 2003, he was the Chief Financial Officer of Imperial Bank. At Imperial he also held the position of Group Treasurer for a number of years. He led the Group in devising its current strategy of global expansion across the logistics industry and supervised significant M&A activity during his tenure as CEO.
Hubert serves as Non-executive Director on the boards of Imperial Holdings, Woolworths and Mix Telematix.
5. KE King (Board) (Age: 36) BCom (Hons) Accounting (CTA Equivalent) CA(SA) After qualifying as a Chartered Accountant in 2008, Kirsten worked as an audit manager for PKF (Jhb) Inc (now Grant Thornton), before joining Comair Limited in 2011. She was involved in the launch of the Sabre platform and implemented the Sabre Revenue Accounting system, establishing an end to end revenue accounting function at Comair. She held the position of acting Finance Executive in 2014 and was appointed Financial Director in June 2014.
6. PJ Welgemoed (Audit Committee) (Age: 71) BCom (Hons), MCom, DCom In 1971 Peter was awarded his Doctorate in Transport Economics at Rand Afrikaans University. In 1974, he was appointed Professor and Chairman of the Department of Transportation Economics and Director of the Research Centre for Physical Distribution and Transportation Studies at Rand Afrikaans University. Thereafter he served on various Boards of Directors of companies involved in transportation and banking. In September 1989 he was appointed Deputy Minister of Mineral and Energy Affairs and Public Enterprises. In 1990 he served as a Member of Cabinet, with the portfolio of Minister of Transport and in 1992 as Minister of Transport and of Post and Telecommunication. In 1998 Peter was appointed to the position of Executive Chairman of the Board of Market Power (SA) in South America. He controlled the daily operations of the Group in Chile, Argentina and Uruguay from the Head Office in Santiago. At present is he is involved in private business through directorships and consultancy.
118 Integrated Annual Report 2014
7. KI Mampeule (Audit Committee) (Age: 49) (BA, MSc, MBA) Khutso Mampeule is the Executive Chairman of Lefa Group Holdings, an investment holding and consulting company which he established in 2003. He has overall responsibility for the development and implementation of the group’s strategy and business model. In addition, Khutso is a Director of JSE- Listed Niveus Investments Limited (where he is Chairman of the Audit and Risk Committee), Truworths International Limited and Withmore Investments (Pty) Ltd., an empowerment consortium he represents on the KWV Holdings Limited Board. He is also a Director of the Institute of Directors (IoD, SA) and a number of other privately held companies. Until May 2007, Khutso was Group CEO of the South African Post Office, where he made extensive headlines for taking firm positions against poor governance and corrupt practices at the institution. Prior to starting Lefa Group Holdings, Khutso was CEO of Old Mutual Employee Benefits. Before that, he spent seven years in various senior executive positions at Transnet where he was responsible for rail operations, including rail/port integration, and the turnaround of the iron-ore export business within Spoornet (OREX). His last position at Transnet was as the CEO of its subsidiary, South African Express Airways. Khutso is a trustee of the World Wide Fund for Nature (WWF, SA), and Regional Chairman of the Young Presidents Organisation (YPO, Africa). He holds BA, MSc and MBA degrees.
119 Share Price Performance
2014 2013
c c
Market price (cents per share) Closing (30 June) 448 265 High 500 305 Low 250 110
Closing price/earnings ratio 7.7 5.6
Number of shares in issue At year end (millions) 440 489 Weighted average (millions) 453 489
Volume of shares traded (millions) 116 38
Volume of shares traded to number in issue at year end 26.4% 7.80%
120 Integrated Annual Report 2014
Shareholder Analysis
Shareholder Spread
No. of Bands shareholdings % No. of shares %
1–1,000 shares 1,879 59.03 572,606 0.13 1,001–10,000 shares 852 26.77 3,253,000 0.74 10,001–100,000 shares 277 8.70 9,324,765 2.12 100,001–1,000,000 shares 132 4.15 40,063,654 9.10 1,000,001 Shares and over 43 1.35 387,049,074 87.91 Total 3,183 100.00 440,263,099 100.00
Distribution of Shareholders
No. of Type of shareholder shareholdings % No. of shares %
Banks and brokers 13 0.41 17,204,220 3.91 Medical schemes 2 0.06 973,397 0.22 Close corporations 28 0.88 506,544 0.12 Endowment funds 11 0.35 1,753,974 0.40 Individuals 2,802 88.03 17,420,218 3.96 Insurance companies 11 0.35 1,908,221 0.43 Investment companies 8 0.25 4,056,106 0.92 Mutual funds 58 1.82 115,581,409 26.25 Nominees and trusts 99 3.11 8,996,407 2.04 Other corporations 18 0.57 162,269 0.04 Retirement funds 90 2.83 32,590,208 7.40 Private (Pty) companies 42 1.31 234,117,595 53.18 Share trust 1 0.03 4,992,531 1.13 Total 3,183 100.00 440,263,099 100.00
121 Shareholder Analysis (continued)
Beneficial Shareholders Holding of 3% or More
No. of % Type of shareholder shares shareholding
BB Investment Company (Pty) Ltd 126,320,151 28.69 Allan Gray* 64,842,669 14.73 Britair Holdings Limited 53,966,623 12.26 Innercreek Investments (Pty) Limited 50,000,000 11.35 Investment Solutions** 11,638,721 2.64 Barclays Private Bank and Trust Limited*** 9,000,000 2.04 Total 315,768,164 71.72
* Allan Gray Allan Gray Balanced Fund 22,009,211 (5.00%) Allan Gray Equity Fund 22,007,721 (5.00%) Allan Gray Domestic Equity Portfolio 14,318,600 (3.25%) Allen Gray Global Absolute Portfolio 2,722,003 (0.62%) Allan Gray Life Hedged Domestic Equity Portfolio 2,459,462 (0.56%) Allan Gray Domestic Absolute Portfolio 1,145,672 (0.26%) Allan Gray Relative Domestic Equity Portfolio 180,000 (0.04%) 64,842,669 14.73%
** Investment Solutions Investment Solutions Funds 5,548,241 (1.26%) Investment Solutions Classic Balanced 2,766,740 (0.63%) Investment Solutions Balanced 1,938,000 (0.44%) Investment Solutions Incubator Pure Equity 1,032,284 (0.23%) Investment Solutions Aggressive Value Equity 222,238 (0.05%) Investment Solutions Preservation Provident Fund 68,400 (0.02%) Investment Solutions Institutional Equity 62,818 (0.01%) 11,638,721 (2.64%)
*** Barclays Private Bank & Trust Limited Barclays Private Bank and Trust Limited 9,000,000 (2.04%)
The Company concluded a Black Economic Empowerment (BEE) transaction during the 2007 financial year, pursuant to which shares equivalent to 15% of the Company’s post transaction share capital were issued to a BEE consortium known as Thelo Aviation Consortium (Pty) Ltd, led by Thelo Aviation Investments (Pty) Ltd. Thelo Aviation Investments (Pty) Ltd had, in addition, purchased 1.5% of the Company’s issued share capital at the time from certain shareholders for cash which they sold in the financial year under review. Refer to the Circular to Ordinary Shareholders issued on 23 August 2006 for further information relating to the BEE transaction.
Fund Managers Holding 3% or More The following Fund managers hold 3% or more of the issued share capital of the Company: No. of % Type of shareholder shares shareholding
Allan Gray Asset Management 105,637,662 23.99 Investec Asset Management 10,106,578 2.30 Barclays Private Bank Trust Ltd 9,000,000 2.04 Centaur Asset Management 8,492,244 1.93 Total 133,236,484 30.26
122 Integrated Annual Report 2014
Public/Non-public Shareholder Spread (Including Resident and Non-resident Shareholding)
Number of shareholders in Number of shareholders other South Africa than in South Africa Total shareholders
Type of shareholder No. of shares % No. of shares % No. of shares %
Non-public shareholders Directors and Associates (9) 52,164,512 11.85 52,164,512 11.85
Strategic holdings (more than 10%) BB Investment Co. (Pty) Ltd (1) 126,320,151 28.69 126,320,151 28.69 Britair Holdings Limited (1) 53,966,623 12.26 53,966,623 12.26
Share trusts Comair Share Incentive Trust (1) 4,992,531 1.13 4,992,531 1.13
Public shareholders Resident (3,137) 177,800,149 40.39 177,800,149 40.39 Non-resident (34) 25,019,133 5.68 25,019,133 5.68 361,277,343 82.06 78,985,756 17.94 440,263,099 100.00
123 Administration
Registered Office 1 Marignane Drive Bonaero Park Kempton Park 1619
Principal Place of Business 1 Marignane Drive Bonaero Park Kempton Park 1619
Group Company Secretary DH Borer 1 Marignane Drive Bonaero Park Kempton Park 1619 E-mail: [email protected]
Transfer Secretaries Computershare Investor Services (Proprietary) Limited Ground floor 70 Marshall Street Johannesburg 2001 (PO Box 61051, Marshalltown, 2107)
124 Form of Proxy for Annual General Meeting
Comair Limited Registration number 1967/006783/06 Incorporated in the Republic of South Africa ISIN Code: ZAE000029823 Share Code: COM (Comair or the Company)
The form of proxy is only to be completed by those shareholders who are: • holding ordinary shares of the Company in certificated form; or • recorded on the electronic sub-register in ‘own name’ dematerialised form. Shareholders who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker and wish to attend the Annual General Meeting, must instruct their CSDP or broker to provide them with a Letter of Representation, or they must provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement/mandate entered into between them and the CSDP or broker. Shareholders are requested to lodge their Forms of Proxy or to post same to the Company’s Transfer Secretaries to be received not later than 48 hours (excluding Saturdays, Sundays and public holidays) before the time appointed for the holding of the Annual General Meeting, being Wednesday, 5 November 2014 at 13h00. Nevertheless, Forms of Proxy may be lodged at any time prior to the commencement of voting on the resolutions at the Annual General Meeting. Any shareholder who completes and lodges a Form of Proxy will nevertheless be entitled to attend and vote in person at the Annual General Meeting. I/We (BLOCK LETTERS) of (address) Telephone: (Work) (area code) Telephone: (Home) (area code) being a holder of certificated shares and ‘own-name’ dematerialised shares of the Company and entitled to votes hereby appoint (see Note 1): (Please print) 1. or failing him/her 2. or failing him/her 3. the Chairman of the Annual General Meeting as my/our proxy to vote for me/us at the Annual General Meeting which will be held for the purpose of considering, and, if deemed fit, passing, with or without modifications, the resolutions to be proposed thereat and at each adjournment or postponement thereof, and to vote for/or against the resolutions and/or abstain from voting in respect of the shares in the issued share capital of the Company registered in my/our name/s (see note 2) as follows:
Number of votes For Against Abstain Ordinary Resolutions 1 to 4 1 Consideration of the Annual Financial Statements 2 Re-appointment of external auditors. 3 To re-elect the following Directors: Directors retiring by rotation: 3.1 RC Sacks 3.2 GJ Halliday 3.3 WD Stander Directors appointed during the year 3.4 HR Brody 3.5 KE King 4 To elect the following Directors to the Audit Committee 4.1 PJ Welgemoed 4.2 KI Mampeule 4.3 WD Stander 4.4 GJ Halliday 4.5 HR Brody 5. Non-binding Endorsement Non-binding Endorsement of Company’s Remuneration Policy Special Resolutions 1 to 4 6. Approval of Non-executive Directors’ Remuneration 2013/14 7. Approval of Non-executive Directors’ Remuneration 2014/15 8 General Authority to repurchase shares 9. General Authority to provide financial assistance to related and inter-related companies and corporations Ordinary Resolution No. 5 10. Authorisation for Company Secretary or any other Director to sign necessary documents to give effect to resolutions and generally to act as my/our proxy at the said Annual General Meeting. (Please indicate with an ‘X’ whichever is applicable. If no direction is given, the proxy holder will be entitled to vote or abstain from voting as the proxy holder deems fit.)
Signed at on this day of 2014
Signature/s assisted by me (where applicable) Each shareholder is entitled to appoint one or more proxies (who need not be a shareholder/s of the Company) to attend, speak and vote in place of that shareholder at the Annual General Meeting.
Please read the notes on the reverse side hereof Notes to the Form of Proxy
1. A certificated shareholder or ‘own-name’ dematerialised shareholder may insert the names of two alternative proxies of the shareholder’s choice in the space provided, with or without deleting ‘the Chairman of the Annual General Meeting’. The person whose name appears first on the Form of Proxy and whose name has not been deleted will be entitled and authorised to act as proxy to the exclusion of those whose names follow.
2. A shareholder’s instructions to the proxy must be indicated by the insertion of an ‘X’ in the appropriate box provided. Failure to comply herewith will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he/she deems fit in respect of all the shareholder’s votes exercisable thereat. Where the proxy is the Chairman, such failure shall be deemed to authorise the Chairman to vote in favour of the resolutions to be considered at the Annual General Meeting in respect of all the shareholder’s votes exercisable thereat.
3. The completion and lodging of this form will not preclude the relevant shareholders from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so. Forms of proxy should be lodged with or posted to the Company’s Transfer Secretaries to be received not later than 48 hours before the Annual General Meeting, being Wednesday, 5 November 2014 at 13h00. Nevertheless, Forms of Proxy may be lodged at any time prior to the commencement of voting on the resolutions at the Annual General Meeting. Any Forms of Proxy not received by this time must be handed to the chairperson of the meeting immediately prior to the meeting.
4. The Chairman of the Annual General Meeting may accept or reject any Form of Proxy which is completed and/or received other than in accordance with these notes and instructions, provided that the Chairman is satisfied as to the manner in which the shareholder wishes to vote.
5. Documentary evidence establishing the authority of a person signing this Form of Proxy in a representative or other legal capacity such as a power of attorney or other written authority must be attached to this form unless previously recorded by the Transfer Secretaries of the Company or waived by the Chairman of the Annual General Meeting.
6. The Chairman shall be entitled to decline to accept the authority of a person signing the proxy form:
(a) under a power of attorney; and/or (b) on behalf of a Company
if that person’s power of attorney or authority is not deposited with the Transfer Secretaries of the Company as set out in Note 3 at least 48 hours before the holding of the Annual General Meeting.
7. An instrument of proxy shall be valid for any adjournment or postponement of the Annual General Meeting, unless the contrary is stated therein, but shall not be used at the resumption of an adjourned Annual General Meeting if it could not have been used at the Annual General Meeting from which it was adjourned for any reason other than that it was not lodged timeously for the meeting from which the adjournment took place.
8. A vote cast or act done in accordance with the terms of a Form of Proxy shall be deemed to be valid notwithstanding:
(a) the previous death, insanity or any other legal disability of the person appointing the proxy; or (b) the revocation of the proxy; or (c) the transfer of a share in respect of which the proxy was given,
unless notice as to any of the above-mentioned matters shall have been received by the Company care of its Transfer Secretaries as set out in Note 3 or by the Chairman of the Annual General Meeting if not held at the principal place of business of the Company, before the commencement or resumption (if adjourned) of the Annual General Meeting at which the vote was cast or the act was done or before the poll on which the vote was cast.
9. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the Company’s Transfer Secretaries.
10. Where shares are held jointly, all joint holders are required to sign the Form of Proxy.
11. Any alteration or correction made to this Form of Proxy must be initialled by the signatory/ies. Integrated Annual Report 2014 K-11836 [www.kashan.co.za] Integrated Annual Report 2014
Incorporated in the Republic of South Africa Registration number: 1967/006783/06. Share code: COM. ISIN code: ZAE000029823. (“Comair” or “the Company” or “the Group”)